A refinance is approved when the new lender is satisfied you can afford the loan and the property supports it. Knowing how that assessment works helps you prepare, and it often saves time.
This article is for homeowners and investors thinking about moving their loan, whether the fixed rate period is ending or the rate just feels too high. It covers what happens between applying and settlement.
How Does the Refinance Approval Process Work?
The steps vary by lender, but they typically include application and assessment, a valuation, approval and settlement, when your old loan is paid out.
Under responsible lending laws, a lender must ask about your requirements, objectives and financial situation. It must also take reasonable steps to verify that situation. It then decides whether the loan is unsuitable for you. A loan is unsuitable if you would likely be unable to meet the repayments, could do so only with substantial hardship, or if it does not meet your requirements. A broker helping you must also act in your best interests and put your interests first if there is a conflict.
What Will a Lender Check on a Refinance Application?
Lenders check your income, your debts and living costs, your repayment history, and the value of the property. They then test whether you could still afford the loan if rates were higher.
Banks must assess new borrowers at a rate at least 3 percentage points above the loan rate. APRA confirmed in May 2026 that this buffer stays at 3 percentage points. That means a loan you comfortably pay today can still fail the test with a new lender. Your borrowing capacity is worth checking before you apply.
If you do not meet standard criteria, APRA has said these cases are assessed one by one. Banks can consider other signs of repayment ability, such as how reliably you have paid your current loan.
Why Your Repayment History Matters Most on a Like-for-Like Refinance
If you refinance to a lower rate without borrowing more, lenders can focus mainly on how you have paid your current loan. ASIC guidance says this kind of refinance is likely to suit you when you have paid on time, your repayments will fall, and your circumstances have not worsened.
ASIC also notes that regular payments can hide financial stress, so lenders may look back over a period such as 12 months. Adding extra borrowing, for example to release equity, changes this. The lender then looks at the whole picture again.
Refinance Approval Example: A Rate Drop Without Extra Borrowing
Consider a homeowner whose fixed rate period is ending and who owes $500,000 with 25 years left. At an illustrative rate of 6.75% p.a., principal and interest repayments are about $3,455 a month. If a new lender offered a lower rate and the owner kept the loan amount and term the same, the lender could focus mainly on 12 months of repayment history. It would usually still verify income, value the property and apply its serviceability test.
In this scenario the owner gathers recent payslips and loan statements before applying. The valuation comes back in line with expectations, and approval follows. The outcome depends on the costs too. A discharge fee, an application fee and any broker fee all count against the savings. A switch makes sense only when the saving over time outweighs those costs.
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Which Fees Can Stop a Refinance Making Sense?
The main costs are a break fee if you leave a fixed rate early, a discharge fee, a new loan application fee, and possibly lenders mortgage insurance if you have less than 20% equity. Fees set by lenders vary, so ask for them in writing.
Exit fees on residential loans signed on or after 1 July 2011 are prohibited, but break fees and discharge fees are not covered by that ban. Break fees apply only to fixed loans ended early, not to variable loans. Waiting for your fixed rate expiry can remove that cost altogether.
ASIC guidance also says that if repayments fall only because the term is longer, you will pay more interest over the life of the loan. Compare the total cost, not only the monthly figure. A loan health check can show where your current loan sits before you commit.
Refinancing to Release Equity: What Changes at Approval
If you borrow more to release equity, the lender assesses the extra debt as new lending, so your income, expenses and the property value all matter more. Lenders must ask about your requirements and objectives, and may ask what the extra funds are for.
This is common for people who want to use home equity to build a granny flat or fund a renovation. Our page on refinancing to fund a granny flat covers that path in more detail. The trade-off is a larger loan and higher repayments, and you will pay interest on the extra amount for as long as you hold it.
Tax is another point for investors. The ATO says interest is deductible based on what the borrowed money is used for, not what secures the loan. If part of a refinanced loan goes to private spending, interest on that part is not deductible and must be apportioned. Speak to your accountant before you restructure.
Special Cases: Government Scheme Loans
If your loan is under the Australian Government 5% Deposit Scheme, you may keep the benefit by refinancing to another participating lender, but you cannot increase the loan or extend the term. Moving to a lender outside the scheme counts as full repayment, and the loan loses the benefit. If your loan is above 80% of the property value when cover ends, the lender may charge lenders mortgage insurance or other costs. Help to Buy loans have their own rules, including approval from Housing Australia, so check before you apply.
How to Prepare Before You Apply
The most useful preparation is to confirm your current loan balance, rate and fees, and to get your recent statements and income documents in order. Having these ready helps the assessment move along without back-and-forth.
It also helps to know your equity and what you want from the new loan, such as an offset account or redraw. Features can cost more through a higher rate or annual fee, so weigh them against how you will use them. Use our mortgage repayment calculator to test different loan amounts before you speak to a lender.
Call one of our team or book an appointment at a time that works for you. We will review your current loan, tell you honestly whether a switch stacks up, and handle the application if it does.
Frequently Asked Questions
How long does refinance approval take?
It varies by lender and how complete your application is. Having your statements and income documents ready, and a valuation that matches expectations, helps the process move along.
Can I be refused a refinance even if I pay my loan on time?
Yes. A new lender must test whether you could afford the loan at a rate 3 percentage points above the loan rate, and your income, debts or equity may have changed. Some cases are assessed one by one.
Do I pay a fee to leave my current lender?
Exit fees on residential loans signed on or after 1 July 2011 are prohibited. Break fees on fixed loans ended early and discharge fees can still apply, so ask your lender for the figures in writing.
Does releasing equity change how a refinance is assessed?
Yes. Borrowing extra is assessed as new lending, so lenders look more closely at your income, expenses and the property value. Investors should also ask their accountant how the extra borrowing affects tax.
