Most refinance home loan applications aren’t declined because someone did something wrong. They’re declined because one number — serviceability, equity, a line on a credit report, or a valuation — didn’t land where the lender needed it to, and nobody checked before the application went in.
That’s the part worth knowing before you apply. A decline isn’t a verdict on you, and in most cases it isn’t permanent. But it does leave a mark on your credit file, so it’s better to know what a lender is going to look at than to find out afterwards.
What disqualifies you from a refinance home loan?
Five things account for most refinance declines: not passing the lender’s serviceability test, not having enough equity, recent conduct on your credit report, a property valuation coming in lower than expected, and income that the lender can’t verify in the form it wants. Any one of them can stop an application on its own, even when the other four are fine.
Here’s what each one means in practice, and what usually moves it.
| What stops it | What the lender is looking at | What usually helps |
|---|---|---|
| Serviceability | Whether you can afford repayments at your rate plus a 3 percentage point buffer | Reducing or closing credit card limits, clearing small debts, extending the loan term |
| Equity | How much of the property you actually own | Waiting for the balance to fall, or accepting Lenders Mortgage Insurance |
| Credit conduct | Missed payments, defaults and how many applications you’ve made | Time, and clean repayment history from here |
| Valuation | What the lender’s valuer says the property is worth, not what you think | A second lender with a different valuer, or a smaller loan |
| Income type | Whether your income can be verified the way that lender requires | A lender whose policy fits your income, rather than a bigger deposit |
What does a knock-back actually look like in practice?
The one we see most often isn’t dramatic. A couple on two PAYG incomes came to us to refinance and didn’t pass serviceability — not because of what they earned, but because of their credit card limits. The lender assessed the full limit as though it were drawn, rather than the balance they were actually carrying.
They reduced the limits first, and the application was approved. Nothing about their income or their repayment history had changed.
Can your income be fine and still fail serviceability?
Yes, and this is the most common surprise. Lenders don’t assess you at the rate you’d actually pay — APRA requires them to add a buffer, and as at May 2026 APRA confirmed “the mortgage serviceability buffer will remain at 3 percentage points.”
So a loan you comfortably afford today is assessed as though repayments were three percentage points higher. That single rule is why plenty of people who have never missed a repayment in their lives still don’t service the new loan on paper. Credit card limits make it worse than most people expect, because lenders assess the full limit as if it were drawn, not the balance you actually carry.
What happens if you have less than 20% equity?
You can usually still refinance, but it costs more. Moneysmart puts it plainly: “If you have less than 20% equity in your home, you might have to pay lender’s mortgage insurance (LMI).”
That matters twice over when you’re switching. LMI you paid on your original loan doesn’t follow you to the new lender, so refinancing under 20% equity can mean paying it a second time — and the insurer assesses you as well as the lender, which is a second set of criteria your application has to clear. It’s also why an application can pass with the bank and still fall over.
What on your credit report can stop a refinance?
Recent missed payments and defaults are the two that do the damage. Your credit report holds repayment history for each credit product you’ve held in the last two years, including “missed payments (not made within 14 days of the due date)” — and defaults stay for five years, or seven “in the case of a clearout.”
Two years is the window that catches people out. A phone bill or a card payment you forgot during a house move still sits there, and it’s visible to every lender you apply to. The good news is that it ages out: repayment history rolls off after two years, and a financial hardship arrangement is deleted after 12 months if you comply with it.
Does applying to several lenders at once hurt you?
It can, because the applications themselves are recorded. Your credit report includes the “number of applications you’ve made” alongside the total amount of credit you’ve borrowed.
A cluster of applications in a short window reads, to the next lender, as someone being knocked back repeatedly. This is the single most avoidable cause of a hard decline, and it’s the reason it’s worth checking policy against your situation before an application is lodged rather than applying widely and hoping one sticks.
What if the valuation comes in lower than you expected?
The lender lends against its valuer’s figure, not the one in your head or the one on a property website. A lower valuation raises your loan-to-value ratio, which can push you under the equity threshold and trigger LMI — or take the application out of policy altogether.
Valuations aren’t uniform either. Different lenders use different valuers and different methods, so a figure that fails with one can pass with another. That’s worth knowing before you accept that refinancing isn’t possible.
Does being self-employed or on contract disqualify you?
No. It changes which lenders will look at the application and what they’ll ask for, but self-employment isn’t a disqualifier on its own.
What causes the decline is usually a mismatch between how your income is actually structured and how a particular lender wants to see it evidenced. Two full years of tax returns, one year, or an accountant’s declaration — the requirement varies by lender, and applying to one whose policy doesn’t fit your income is what turns a workable application into a decline.
Can you refinance with your current bank instead of switching?
Often, yes — and it’s worth asking before you go anywhere. Moneysmart lists a “switching fee” for “refinancing internally (staying with your current lender but switching to a different loan)”, which tells you it’s a normal thing to do.
Staying put can avoid discharge and application fees, and the lender already holds your history. The catch is that you’re comparing one lender’s offer against itself, with no view of what the rest of the market would do. That’s the trade-off, not a reason to rule either option out.
When is refinancing not worth it, even if you’re approved?
When the cost of switching outweighs what you’d save over the time you actually plan to keep the loan. Moneysmart lists the costs to weigh: a break fee if you’re on a fixed rate, a discharge or termination fee to close the current loan, an application fee on the new one, and in some cases stamp duty.
If you’re likely to sell in the next year or two, or you’re partway through a fixed term with a meaningful break cost, the numbers often don’t work — and being approved doesn’t change that. We’d rather tell you the sums don’t stack up than move a loan that shouldn’t be moved. Our refinance guide walks through the arithmetic with a worked example.
What should you do if you’ve already been knocked back?
Ask the lender which criterion the application failed on, and don’t lodge another one until you know. A decline for serviceability, a decline for equity and a decline for credit conduct need three completely different responses, and applying again without that answer is how a single decline turns into a pattern on your file.
From there it’s usually a question of matching the situation to a lender whose policy fits it, or fixing the one input that fell short and waiting. Neither of those requires another application to find out.
Thinking about refinancing and not sure whether you’d pass? We compare options across our panel of 40+ Australian lenders and can tell you where you’d stand before anything is lodged. Talk to a broker — a broker calls you back the same business day. It costs you nothing — we’re paid a commission by the lender, not by you.
This article was written by the Click Financial team, licensed mortgage brokers operating under Australian Credit Licence 390820, MFAA member 320936 and AFCA member 25029. It’s general information about how lenders assess refinance applications, not personal financial advice, and it doesn’t take your individual circumstances into account.