What Not to Do When Refinancing Your Home Loan

Refinancing is rarely declined because you applied too late. It's usually declined because you applied without understanding what lenders actually assess.

Most borrowers assume that because they were approved for their original loan, they'll sail through a refinance with the same lender or a new one. That's not how it works. Lenders assess your current financial position from scratch, and the requirements have changed since you first borrowed. If your income has shifted, your spending has increased, or your property has been modified, you could be caught out.

What Lenders Actually Check When You Refinance

Lenders assess your current income, expenses, liabilities, credit history, and the property itself. They don't rely on what was approved previously. Your loan may have been approved three years ago when you had a higher salary or fewer debts. Those circumstances don't carry forward. If you're now earning rental income from a granny flat, managing multiple properties, or working different hours, that all gets reassessed.

Consider a borrower who built a granny flat on their property two years ago and now wants to refinance to access a lower rate. The property has two dwellings on one title. Some lenders won't refinance dual occupancy properties at all. Others will, but only if the granny flat was approved with council consent and meets their valuation criteria. If the borrower assumes the refinance is straightforward and applies with a lender who doesn't accept dual dwellings, the application is declined, a credit enquiry is recorded, and they're back at the start.

Income Changes That Affect Your Refinance Application

Your income needs to be stable and verifiable at the time you apply. Lenders typically want to see at least three months of recent payslips if you're a PAYG employee, or two years of tax returns if you're self-employed. If you've recently changed jobs, gone part-time, taken unpaid leave, or started receiving income from a new source like a rental property, you'll need to provide documentation that proves consistency.

Rental income from a granny flat is treated differently depending on the lender. Some will accept 80% of the rental income as serviceable income. Others won't recognise it at all if the granny flat isn't separately titled or if you don't have a formal lease in place. If that income is critical to your serviceability and you apply with a lender who discounts it heavily, your application may not proceed.

Liabilities and Credit Checks You Can't Ignore

Every refinance involves a full credit check. Lenders review your current debts, credit cards, personal loans, car loans, and any other facilities in your name. They also look at your repayment history. If you've missed repayments, defaulted on a utility bill, or applied for multiple credit products recently, that affects your eligibility.

Credit card limits are treated as liabilities even if you don't carry a balance. A $20,000 limit on a card you rarely use is still assessed as though you could draw the full amount tomorrow. In our experience, borrowers often forget to disclose store cards, buy-now-pay-later accounts, or joint debts with a partner or family member. Those all appear on your credit file and will be factored into your application. If you're using equity to fund a granny flat or another project, lenders want to know your total exposure, not just the loan you're refinancing.

Property Valuation and Structural Changes

Lenders order a valuation as part of the refinance process. The valuer assesses the current market value of your property and checks whether any structural changes have been made since the original loan was approved. If you've added a granny flat, extended the home, or made other modifications without council approval, the valuer will note that in their report. Some lenders will decline the application outright if unapproved structures are present.

Even if the granny flat was built with full approval, not all lenders recognise the added value in the same way. A property with a compliant granny flat in a metro area may be valued higher, but a similar setup on rural land or in a regional postcode may be discounted depending on the lender's appetite for that location. If you're relying on a specific valuation to access enough equity for your next step, it's worth checking which lenders accept granny flat properties before you apply.

Loan Purpose and How It Affects Your Rate

Lenders ask why you're refinancing. The answer affects which products you're eligible for and what rate you'll be offered. Refinancing to access a lower rate is treated differently to refinancing to release equity for investment purposes. If you're releasing equity to build a second dwelling, fund renovations, or invest elsewhere, some lenders will classify part of the loan as investment lending, even if you live in the property. That can mean a higher rate or stricter serviceability.

If your fixed rate period is ending and you want to refinance before rolling onto a higher variable rate, timing matters. Most lenders won't let you break a fixed rate without charging an early repayment fee, and those fees can run into the thousands. You can apply for a refinance in the final few months of your fixed term and time settlement for just after it expires, but you'll need to plan ahead. Leaving it until the week before expiry doesn't give you enough time to compare options or complete the process.

Why Borrowing Capacity Can Shrink Even When Your Income Hasn't

Serviceability rules have tightened. Lenders now assess your expenses more closely, using either your actual declared spending or a benchmark figure called the Household Expenditure Measure. If your actual spending is higher than the benchmark, they'll use the higher number. That reduces your borrowing capacity. If you've taken on new debts, increased your credit card limit, or your living costs have grown since your original loan, you may not be able to borrow the same amount you did previously, even if your income has stayed the same.

This is particularly relevant if you're looking to access equity for an investment or construction project. The amount you can borrow depends not just on the equity available in your property, but on whether your income can service the higher loan amount after the lender applies their buffer and assessment rate. A loan health check before you apply gives you a clearer picture of where you stand.

When to Get Your Application Reviewed Before You Apply

Refinancing without understanding your current position is a risk. If you're declined, that enquiry stays on your credit file for five years and makes the next application harder. If you're unsure whether your income will stack up, whether your property will be valued as expected, or whether the lender you're considering will accept your loan purpose, it's worth getting your situation reviewed before you submit anything.

Call one of our team or book an appointment at a time that works for you. We'll walk through your current position, your property setup, and what you're looking to achieve, and match you with a lender who's likely to say yes before you put pen to paper.

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