Finding a lower home loan rate does not necessarily mean you will qualify to refinance. Some borrowers discover that although a new loan could potentially reduce their repayments, they cannot pass a new lender’s serviceability assessment. This situation is sometimes described as being in “mortgage prison”.
If you are having difficulty refinancing, our home loan refinancing service explains how CBM Mortgages can review your existing loan, assess your borrowing position and compare suitable lender options.
Being unable to meet one lender’s standard assessment does not necessarily mean there are no options available. However, refinancing still requires a proper assessment of your ability to repay the new loan, and there is no guarantee another lender will approve an application.
What does “mortgage prison” mean?
“Mortgage prison” is an informal term commonly used to describe a situation where a borrower wants to refinance but has difficulty qualifying for a new home loan.
This can happen even when the borrower has been making repayments successfully.
Possible reasons include:
- the serviceability assessment applied to a new loan;
- higher household expenses;
- changes to income or employment;
- existing credit cards, personal loans or other debts;
- a reduction in available property equity;
- changes in lender credit policies; or
- changes to the borrower’s circumstances since the existing loan was approved.
It is important to distinguish serviceability difficulties from credit-history problems. If your main concern is your credit file or previous repayment issues, our guide to refinancing with bad credit looks at that issue separately.
Why can refinancing serviceability be harder than expected?
When you refinance, the new lender does not simply look at whether you have been making your existing repayments.
The lender must assess whether you can reasonably afford the proposed new loan under its lending criteria.
This can involve reviewing your:
- income;
- living expenses;
- existing debts and credit limits;
- proposed loan repayments;
- other financial commitments;
- property value and available equity; and
- overall financial position.
The lender may therefore assess your position differently from the lender that approved your original home loan several years ago.
What is the mortgage serviceability buffer?
The serviceability buffer is designed to test whether a borrower would still be able to meet repayments if interest rates were higher than the rate applying when the new loan is assessed.
In broad terms, this means lenders subject to APRA’s requirements generally assess a new housing loan using an interest rate above the actual loan rate, together with the lender’s other serviceability requirements.
The buffer provides protection against potential increases in interest rates and changes in a borrower’s income or expenses.
Can lenders make exceptions to standard serviceability policy?
Potentially, but this should not be confused with removing responsible lending or serviceability requirements.
APRA has explained that banks can use exceptions to standard housing lending policy, provided those exceptions are managed prudently and are limited.
For refinancing, APRA has specifically noted that an assessment may take into account additional indicators of repayment capacity, including previous repayment behaviour.
That does not mean every lender offers the same exception process or that a borrower who fails a standard serviceability assessment will automatically qualify elsewhere.
Lender policies can differ and can change, which is why an individual assessment matters.
Can I refinance if I fail the standard serviceability test?
Sometimes there may still be options worth investigating.
The outcome can depend on factors such as:
- your repayment history;
- the loan amount you are seeking;
- your property value and loan-to-value ratio;
- your income and living expenses;
- your existing debts and credit limits;
- whether the proposed new loan improves your position;
- the lender’s current credit policy; and
- whether the lender has an appropriate policy-exception process.
However, a lender still needs to make a prudent assessment of your ability to repay the loan. A policy exception is not a shortcut around responsible lending or an automatic approval.
Will every lender assess my refinancing application the same way?
No.
Lenders can have different credit policies, assessment methods, expense assumptions and requirements. A borrower who does not meet one lender’s criteria may therefore have a different outcome with another lender, although approval is never guaranteed.
This is one area where a mortgage broker can be useful. Rather than submitting applications indiscriminately, CBM Mortgages can review your circumstances and investigate lenders whose current policies may be relevant to your situation.
Could refinancing to a longer loan term reduce my repayments?
Extending the remaining loan term can reduce the required repayment because the debt is being repaid over a longer period.
But there is an important trade-off.
A longer loan term can also increase the total interest paid over the life of the loan, even if the interest rate is lower.
For example, resetting a loan with 20 years remaining back to a new 30-year term may lower the monthly repayment, but you could be paying interest for an additional 10 years.
That is why a refinancing comparison should look at both:
- the immediate repayment; and
- the potential longer-term cost.
CBM’s home loan calculators can help you explore how different rates, loan amounts and repayment periods may affect repayments.
What can I do if refinancing is difficult?
If you are struggling to qualify for refinancing, useful steps may include:
1. Review your existing loan first
Ask your current lender whether better pricing or a more suitable loan structure is available without changing lenders.
2. Check your current home loan rate
Make sure you know the rate you are actually paying and how it compares with your repayment and remaining loan term.
Our guide to checking your current home loan interest rate explains where to start.
3. Review your debts and credit limits
Credit card limits and other debts can affect a lender’s serviceability assessment even when those facilities are not fully used.
Do not close or change credit facilities solely to obtain a loan without considering the broader consequences, but make sure your broker understands your complete position.
4. Understand your property equity
Your loan balance relative to the property’s current value can influence the lenders and loan options that may be available.
5. Compare appropriate lenders rather than making multiple applications
Different lender policies can produce different outcomes. It can be more useful to identify potentially appropriate options first rather than submitting applications without understanding the likely assessment.
Does a lower refinancing rate automatically mean I will save money?
No.
A lower interest rate can reduce interest costs, but the overall result can also be affected by:
- discharge costs;
- application or valuation costs where applicable;
- ongoing fees;
- the new loan term;
- loan features; and
- how repayments are structured after refinancing.
If you want to assess whether your existing loan is still competitive before looking at serviceability options, see our guide to comparing your home loan.
Frequently asked questions
What does being in “mortgage prison” mean?
“Mortgage prison” is an informal term used when a borrower wants to refinance but has difficulty qualifying for a new loan. Reasons can include serviceability requirements, reduced equity, existing debts, changed circumstances or lender credit policies.
What is the home loan serviceability buffer?
The serviceability buffer helps lenders assess whether a borrower could continue to meet repayments if interest rates were higher. APRA confirmed in May 2026 that its mortgage serviceability buffer remains 3 percentage points.
Can I refinance if I do not pass a standard serviceability assessment?
There may still be options worth investigating. Some lenders may have prudently managed policy-exception processes, but eligibility depends on the lender and your circumstances. Any lender still needs to make an appropriate assessment of your ability to repay the proposed loan.
Does a good repayment history help when refinancing?
It may be relevant. APRA has noted that, for refinancing policy exceptions, lenders may consider additional indicators of repayment capacity such as a borrower’s previous repayment behaviour. The lender’s complete assessment and current policy still apply.
Can CBM Mortgages help if I am struggling to refinance?
Yes. CBM Mortgages can review your existing loan and borrowing position, investigate suitable lender options and explain the potential costs and implications of refinancing based on your circumstances.
Finding it difficult to refinance your home loan?
CBM Mortgages can review your borrowing position, existing home loan and suitable lender options to help you understand what may be possible.
Disclaimer: This article provides general information only and does not constitute personal financial, legal, tax or credit advice. Lending policies, interest rates, serviceability requirements and eligibility criteria can change. Consider your circumstances and obtain advice appropriate to your situation before changing a loan or applying for credit.
Written by Craig McDonald. Updated November 2026.
