Most refinancing applications fail or stall not because the borrower lacks equity, but because the application doesn't meet serviceability thresholds under current lending policy.
Lenders assess refinance applications using different criteria to original purchase loans, and those criteria have tightened considerably. If you're refinancing to access equity or move to a lower rate, you need to know what lenders will scrutinise before you lodge.
Serviceability is recalculated from scratch
When you refinance, the new lender assesses your capacity to service the loan as if you were applying for the first time. They do not simply roll over your existing approval. This means your current income, liabilities, expenses, and employment status are all reassessed under the new lender's policy.
Consider a solicitor who secured a loan three years ago on a salary of $120,000. Since then, they've taken on a car loan with repayments of $800 per month and increased their credit card limit to $25,000. Even if their income has risen to $135,000, the new lender calculates serviceability using the credit card limit at full drawdown, not the current balance. That $25,000 limit alone may reduce borrowing capacity by $125,000 or more, depending on the lender's assessment rate.
If you hold multiple credit facilities, even unused ones, close or reduce limits before you apply. Lenders assess the liability as if it were fully drawn, regardless of your actual usage.
Employment structure and income verification
Lenders require proof of stable, verifiable income. For salaried employees, this typically means recent payslips and a letter of employment. For partners or principals in law firms, it involves tax returns, BAS statements, and sometimes accountant's letters.
In our experience, solicitors on contract or locum arrangements face additional scrutiny. Lenders want to see continuity of engagement and a pipeline of work. If you've moved from permanent employment to contract work since your original loan, expect the new lender to request at least 12 months of continuous contracting history, along with evidence of current and upcoming engagements.
If you're self-employed or operate through a trust structure, most lenders require two years of tax returns showing consistent or increasing income. Some lenders will accept one year if you've recently transitioned from salaried employment within the same field, but this is not universal.
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Equity position and valuation outcomes
The new lender will order a valuation to confirm your property's current market value. If the valuation comes in below your expectation, your loan-to-value ratio may shift, affecting your borrowing capacity or requiring you to contribute additional funds.
Valuations can vary between lenders and between valuers. A property valued at $950,000 by one valuer may be assessed at $900,000 by another, particularly if recent comparable sales are limited. If you're refinancing with a loan amount close to 80% of the expected value, a conservative valuation can push you above that threshold, triggering lenders mortgage insurance or requiring you to reduce the loan amount.
If you're planning to release equity as part of the refinance, factor in a margin of at least 5% below your expected valuation when calculating how much you can access.
Existing liabilities and credit profile
Every liability you hold reduces your borrowing capacity. This includes car loans, personal loans, credit cards, buy now pay later accounts, and HECS-HELP debt. Lenders also review your credit file for any defaults, missed payments, or recent credit enquiries.
A pattern of multiple credit applications in a short period can signal financial stress, even if your credit score remains strong. If you've applied for credit cards, car finance, or other facilities in the past six months, the refinance lender will see those enquiries and may ask for an explanation.
Pay down or close liabilities you no longer need before you apply. If you're carrying a $15,000 car loan with 18 months remaining, paying it out in full can increase your borrowing capacity by $75,000 to $100,000, depending on the lender's assessment rate and your income.
Fixed rate expiry and timing your application
If your fixed rate period is ending, you have a window to refinance without incurring break costs. Most lenders allow you to apply within 90 days of the fixed term expiring, though some require you to be within 60 days.
Do not wait until the fixed period has already expired. Processing times can stretch to four or five weeks, and if you revert to your lender's variable rate in the interim, you may end up paying a significantly higher rate while the refinance is being finalised.
If you're still within a fixed period and considering a refinance, calculate the break cost before proceeding. Some lenders will cover part or all of the break cost as an incentive, but this is negotiated on a case-by-case basis and typically requires a minimum loan amount.
Document preparation and response time
Lenders expect borrowers to provide requested documents within a set timeframe, usually 48 to 72 hours. If you delay, your application may be reassessed under updated policy, or your approval may lapse.
Have the following ready before you lodge: three months of payslips, two years of tax returns if self-employed, 90 days of bank statements for all accounts showing salary credits and living expenses, identification documents, and details of all current liabilities including account numbers and balances.
Borrowers who provide incomplete or inconsistent documents extend the approval timeline and increase the risk of additional conditions being imposed. If your bank statements show irregular deposits or unexplained credits, the lender will request a letter explaining the source of those funds.
Lender-specific policy and profession recognition
Not all lenders assess legal professionals in the same way. Some recognise the profession as lower risk and offer LMI waivers or accept alternative income verification methods. Others apply standard policy regardless of occupation.
If you're refinancing to consolidate debt or access equity for investment, choosing a lender that understands legal professionals can make the difference between approval and decline. Policies on income treatment, acceptable loan purposes, and serviceability buffers vary widely.
A home loan health check can identify which lenders align with your circumstances and what you need to address before applying. Refinancing is not simply a matter of finding a lower rate. It's about matching your financial profile to a lender whose policy supports your application.
If you're considering a refinance or your fixed term is ending, call one of our team or book an appointment at a time that works for you.
Frequently Asked Questions
What is the main reason refinancing applications are declined?
Most refinancing applications fail due to serviceability issues rather than lack of equity. Lenders recalculate your capacity to service the loan from scratch, assessing current income, liabilities, and expenses under their current lending policy.
Do unused credit cards affect my refinancing application?
Yes, lenders assess credit card limits as if they were fully drawn, not based on your current balance. A $25,000 credit card limit can reduce your borrowing capacity by $125,000 or more, even if you never use the card.
How long before my fixed rate expires should I apply to refinance?
Apply within 90 days of your fixed term expiring to avoid break costs, though some lenders require you to be within 60 days. Do not wait until after it expires, as processing can take four to five weeks.
What documents do I need to provide when refinancing?
You'll need three months of payslips, two years of tax returns if self-employed, 90 days of bank statements, identification documents, and details of all current liabilities. Lenders expect these within 48 to 72 hours of requesting them.
Can a low property valuation prevent my refinance from proceeding?
Yes, if the valuation comes in below your expectation, your loan-to-value ratio may push you above 80%, triggering lenders mortgage insurance or requiring you to reduce the loan amount. Factor in a margin of at least 5% below your expected valuation when planning.
