Refinancing when your mortgage is in arrears

couple thinking of refinancing

Falling behind on your mortgage repayments, or having your mortgage in arrears, can happen for a number of reasons.

While refinancing may be a solution to help you with the situation, it’s important to understand the risks and also the benefits of refinancing your home loan with arrears.

What is refinancing and how can mortgage in arrears occur

What is refinancing and how can mortgage arrears occur?

Refinancing is the process of getting a new loan to replace your original loan. Refinancing could allow you to obtain a lower interest rate, access flexible rate options, consolidate multiple debts or leverage accumulated equity in your home.

Whether your mortgage is in arrears due to missed repayments or unexpected rise in interest rates, or you’re unable to work due to an injury, refinancing may be an option to consider.

How can you avoid falling into arrears with your mortgage

How can you avoid falling into arrears with your mortgage?

One of the most important thing you can do to avoid falling behind on repayments is to be completely aware of your responsibilities as a mortgage holder. You need to know when your repayments are due each month and how much your repayments are.

When unexpected events such as a job loss or illness happen and you are unable to afford the repayments, it is important to act quickly so you don’t end up with a bad credit rating, which will affect your chance of getting a loan in the future.

Speak to your lender about whether you are eligible for any form of financial hardship assistance. 


The risks and benefits of refinancing a mortgage in arrears

Like every other loan you apply for, refinancing has its risks and benefits. It's important to carefully consider and understand what each entails before committing to a new loan.


  • Lender's Mortgage Insurance (LMI) - You may need to pay for LMI if you’re refinancing to borrow more than 80% of the current value of your property. 
  • Fees - Refinancing will incur fees, although these vary from lender to lender, in general, some of the fees include a discharge fee and new application fee. Depending on your loan, some lenders may also charge home loan break fees.
  • Longer loan duration - Obtaining a longer loan term on your refinanced mortgage may mean a more comfortable repayment amount, but you’ll also be in debt longer, and will have to pay more interest overall.


  • Lower interest rate - Many people choose to refinance their mortgage to get a lower interest rate. Get advice from your mortgage adviser or financial adviser to see if refinancing will put you in a better financial position.
  • Consolidating debt - Depending on your circumstances, you can also consolidate debts (such as your car loan or credit cards) by refinancing your home loan. Having a single repayment could help give you a little more control over your finances.



Can you refinance with bad credit?

While it's possible to refinance your mortgage, even when in arrears, it's highly dependent on your individual circumstances and isn’t always an easy task. Pepper Money considers each application based on its own merits. Depending on the loan amount and individual’s unique circumstances, our home loan options for bad credit accept applicants with mortgage arrears.

If you’re facing bad credit and looking to refinance, consider consulting a lending specialist or mortgage broker for advice as soon as possible. You may want a plan to demonstrate how you intend to budget better, reduce your spending and put savings aside. Also, try to be in the best possible financial situation when you apply. If possible, paying off any outstanding debt could help.

Apply for a Pepper Money Home Loan

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You are protected by responsible lending laws. Because of these protections, the recommendations given to you about home loans are not regulated financial advice. This means that duties and requirements imposed on people who give financial advice do not apply to these recommendations. This includes a duty to comply with a code of conduct and a requirement to be licensed.

All loan applications are subject to the lender completing responsible lending checks and considering the borrower’s individual circumstances. Terms, conditions, fees and charges apply. Information provided is factual information only and is not intended to imply any recommendation about any financial product(s) or constitute tax advice. If you require financial or tax advice you should consult a licensed financial or tax adviser.

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