Home loan checklist: How to make sure your money is ready to refinance

Refinancing a home loan has both become harder and more necessary for many Australian borrowers, thanks to recent Reserve Bank rate hikes. But if you’ve asked yourself whether you should refinance and decided, “Absolutely, let’s do this,” then it’s essential to get your finances in order. 

Applying for a home loan is much the same the second time around as the first. When you applied for your initial home loan, you needed to show that you had good credit with a low debt-to-income ratio, among other factors, to qualify. When you refinance, you’ll need to check all these numbers again to ensure you’re eligible.

But the catch? Your financial situation has (most likely) changed since your initial mortgage application. Maybe your credit score has taken a dive, or you’ve had a kid or switched careers since your first home loan. As a rule of thumb, mortgage experts recommend preparing your finances at least three months in advance before refinancing.

So how can you get ready to refinance? Let’s run down a basic checklist.

To check your credit score, retrieve credit reports from Australia's three major reporting bureaus – Experian, Illion, and Equifax. If there are any errors in your report, get them fixed ASAP. 

You want to aim for a good or higher score to successfully refinance, though this range can vary between credit bodies. But if your credit score has really taken a hit, don’t panic. It’s totally possible to refinance with bad credit.

While you’re looking at your credit score, take stock of how many debts and liabilities you have. More debt can raise your debt-to-income ratio and make you look like a red flag to lenders. 

Instead, clear and consolidate as much debt as you can. Some first steps to take include lowering the limits on your credit cards and paying off any Buy Now Pay Later or personal loan debts. A debt consolidation loan may help, but do your research and talk to a financial adviser first.

Next up on the refinance prep checklist? Watch your spending and set a budget. Lenders like to see good money habits from refinancers, which can include demonstrating genuine savings, consistently paying expenses, and limiting reckless or frivolous spending. 

While you don’t have to live cheaply to show good money habits, the goal is to prove to a lender that you’re a responsible borrower who doesn’t take on more than you can afford.

Why do mortgage experts recommend preparing to refinance three months in advance? Because three months is what most lenders consider consistent financial behaviour. 

For example, if you just started a new career, showing three months of paychecks tells them you have a steady income. If you’ve started a new budget, showing three months of said budget in action lets a lender know you mean business. 

Three months is a good amount of time for all parts of your refinance application, but the more good history you have, the better. If you’re considering possibly refinancing your mortgage this year, start as soon as you can. Fortune favours the prepared.

Different home loan lenders will have different requirements for refinancers. For example, Westpac, CBA, and NAB recently lowered their serviceability test requirements for specific refinancers because of how high interest rates have flown. Unloan’s refinance-only home loans require you to have at least 80% LVR on loan balances up to $3 million. 

So if you’re thinking about refinancing your home loan, compare offers on the market to see which ones you like best and what you need to do to qualify. Many lenders will have loan specialists available for you to talk to if you’re unsure. 

Compare refinance home loans in the table below.