Most refinance applications get knocked back not because the borrower can't afford the loan, but because they didn't meet one specific eligibility requirement they weren't aware of.
Lenders assess refinance applications differently to purchase loans, and the requirements have tightened considerably in recent years. If you're sitting on a rate above what's currently available or your fixed rate period is ending, understanding what lenders actually check before you apply can save weeks of back-and-forth and potential decline marks on your credit file.
Income Verification: What Lenders Want to See Now
Lenders need to verify your income hasn't dropped since you took out your original loan. This means providing recent payslips, tax returns, or financials depending on how you earn.
If you're a PAYG employee, most lenders require two recent payslips plus your last Notice of Assessment or PAYG summary. If you've changed jobs in the past six months, some lenders will ask for a letter from your employer confirming your employment is ongoing. If you're self-employed or earn income through a trust or company structure, expect to provide two years of tax returns plus financials. Lenders in this situation typically assess your income based on the lower of the two years, or an average after adding back certain deductions. This can work in your favour if your income has grown, but it also means a single lower year can restrict how much you can borrow.
Consider a borrower in Ocean Grove who wanted to refinance to a lower rate after coming off a fixed term. Their income had increased by around 15% since the original loan, but they'd moved from PAYG to self-employed status halfway through. The new lender needed two full years of self-employed tax returns, which they didn't yet have. The refinance had to wait another eight months until the second return was lodged. Planning around your income structure is just as important as comparing rates.
Equity Position: How Much You Need to Avoid LMI
Your equity position determines whether you'll pay Lenders Mortgage Insurance on the new loan. Most lenders will refinance up to 80% of your property's current value without LMI. Above that, you'll either need to pay the insurance premium or look at lenders who accept higher ratios.
The valuation matters more than you think. Lenders don't use your last purchase price or your council rates notice. They order their own valuation, which might be a desktop assessment, an automated valuation model, or a physical inspection depending on the property and loan amount. If the valuation comes in lower than expected, your loan-to-value ratio shifts and you might not have enough equity to proceed without LMI.
In areas like Barwon Heads and Portarlington, where coastal property values have moved around in recent years, a conservative valuation can change the outcome of a refinance application. If you're bordering on 80% loan-to-value ratio, it's worth checking recent comparable sales in your street before applying. A valuation that's $50,000 lower than you expected can push you over the threshold and add thousands in insurance costs you hadn't budgeted for.
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Credit History and Conduct on Your Current Loan
Lenders pull your credit file as part of every refinance application. They're looking for missed payments, defaults, judgments, and how many credit enquiries you've made in the past six months.
Even if your credit file is clear, lenders also review your conduct on the existing loan. If you've missed a repayment in the past 12 months, most lenders will either decline the application or require a detailed explanation with supporting evidence. Two missed payments in the past two years will usually result in an automatic decline from the major lenders, though some non-bank lenders have more flexible policies.
Your current loan statements also reveal how you manage your offset account or redraw facility. If your loan balance has increased since settlement because you've been redrawing regularly without making extra repayments, some lenders see this as poor conduct and may either decline the application or reduce the amount they're willing to lend. This can be a problem if you're refinancing to access equity for an investment property or renovation, because the lender sees you've already drawn down available funds without building a savings buffer.
Debt-to-Income Ratio and Living Expenses
Lenders now assess your total debt against your income using a debt-to-income ratio, which has become one of the more common reasons refinance applications get restricted or declined.
Most lenders cap this ratio at six times your gross annual income, though some will go higher depending on your profile. If you earn $120,000 a year, the maximum total lending across all loans would typically be $720,000. This includes your home loan, investment loans, car loans, personal loans, and even the limit on your credit cards, whether you carry a balance or not.
Living expenses are assessed using either your actual spending or a benchmark figure called the Household Expenditure Measure, whichever is higher. If you're spending $6,000 a month on everyday costs but the benchmark for your household size is $4,500, the lender will use $6,000. This directly reduces your borrowing capacity. If you're refinancing and also looking to increase your loan amount to consolidate debt or access equity, inflated living expenses can mean the new lender approves a lower amount than you currently owe, which makes the refinance impossible without paying down the loan first.
Employment Stability and Income Type
Lenders treat different income types differently. PAYG income is the most straightforward. Casual and contract income usually requires a longer history, often 12 months with the same employer or two years across multiple contracts in the same field.
If you receive bonuses, commissions, or overtime, most lenders will only include them if you can show at least two years of consistent history. A single high-earning year won't be enough. Rental income from an investment property is typically assessed at 80% of the gross rent to account for vacancies and maintenance, though some lenders will use 100% if you provide a property management agreement and rental history.
For borrowers on the Bellarine Peninsula working in seasonal industries like hospitality, tourism, or viticulture, proving consistent income can require more documentation than a standard PAYG worker. If your income fluctuates throughout the year, providing multiple years of tax returns and showing that the fluctuations are consistent and predictable can help the lender assess your application more favourably.
Property Type and Location Restrictions
Some properties are harder to refinance than others. Lenders have postcode restrictions, property type restrictions, and location-specific policies that can rule out certain suburbs or dwelling types.
Most lenders will refinance standard residential properties in established areas like Geelong, Ocean Grove, and Barwon Heads without issue. But if your property is on a large acreage, has a bushfire rating above a certain level, or is in a location the lender considers regional or remote, your options narrow. Some lenders also restrict lending on properties with certain construction types, such as mud brick or homes built before a certain decade without updated electrical and plumbing.
If you're refinancing a property in a smaller township on the Bellarine like Indented Head or St Leonards, it's worth checking which lenders will accept the location before going through a full application. A declined application leaves an enquiry on your credit file, and too many enquiries in a short period can make subsequent lenders nervous.
When You Don't Meet the Requirements: What Happens Next
If you don't meet the requirements for one lender, that doesn't mean you won't qualify with another. Different lenders have different credit policies, and a decline from one can be an approval from another if you're working with someone who knows which lender suits your situation.
The biggest mistake is applying directly to multiple lenders yourself. Each application creates a credit enquiry, and after three or four enquiries in a short window, lenders start asking why you've been declined elsewhere. A loan health check before you apply can identify which lender is most likely to approve your situation without leaving unnecessary marks on your file.
If your application is declined or restricted, the lender is required to tell you why. Common reasons include insufficient income, high living expenses, poor loan conduct, or a low valuation. Once you know the specific issue, you can either address it or adjust your strategy. Sometimes that means waiting a few months to build a cleaner repayment history. Sometimes it means paying down other debts to improve your debt-to-income ratio. Sometimes it just means going to a different lender with a different policy.
If you're thinking about refinancing or your fixed rate period is ending, call one of our team or book an appointment at a time that works for you. We'll run through your situation, check your eligibility with the lenders most likely to approve, and make sure the application goes in correctly the first time.
Frequently Asked Questions
How much equity do I need to refinance without paying LMI?
Most lenders require you to have at least 20% equity in your property to refinance without Lenders Mortgage Insurance. This means your new loan amount can't exceed 80% of your property's current valuation, which is determined by the lender, not your purchase price or council valuation.
Will a missed payment stop me from refinancing?
A single missed payment in the past 12 months will make refinancing difficult with most major lenders, though some may accept it with a detailed explanation. Two or more missed payments in the past two years typically result in an automatic decline from major banks, though some non-bank lenders have more flexible policies.
What income documents do I need to provide for a refinance?
PAYG employees typically need two recent payslips plus their last Notice of Assessment. Self-employed borrowers usually need two years of tax returns and financial statements, with income assessed on the lower year or an average after adding back certain deductions.
Does my credit card limit affect my refinance application?
Yes, lenders include your credit card limit in your total debt when calculating your debt-to-income ratio, even if you don't carry a balance. This can reduce your borrowing capacity and may affect whether your refinance is approved or how much you can borrow.
Can I refinance if I've changed jobs recently?
Most lenders will refinance if you've recently changed jobs, but they may require a letter from your employer confirming your employment is ongoing. If you've moved from PAYG to self-employed, you'll typically need to wait until you have two full years of tax returns as a self-employed borrower.
