What Lenders Actually Assess When You Apply to Refinance

Your income and employment status

Lenders verify your current income, not just accept what you earned when you first applied years ago. For PAYG employees, that typically means 2 recent payslips, your most recent group certificate or tax return, and confirmation of your employer and role type. Casual, part-time, and fixed-term contract employees face more scrutiny, as lenders apply a discount or exclude certain allowances when calculating serviceable income.

Self-employed borrowers need 2 years of tax returns and Notices of Assessment as a minimum with most major lenders. Some lenders look at the lower of the two years’ net income; others average them. If income has dropped in the most recent year, it can reduce assessed serviceability significantly, even if the decrease was temporary. How a lender treats your income type can vary enough between institutions that the rate on offer is only part of the picture when comparing options.

Living expenses and the Household Expenditure Measure

All Australian lenders are required by APRA to verify that borrowers can service their loans. For living expenses, lenders either accept your declared monthly costs or apply the Household Expenditure Measure (HEM), which is a benchmark figure based on household size and income. Lenders use whichever figure is higher.

The HEM benchmark adjusts regularly. For a single person earning $100,000 per year, the HEM baseline in mid-2026 sits around $2,400 per month. For a couple with two children, the figure rises to approximately $4,100 per month. If your declared expenses fall below the HEM value, the lender substitutes the benchmark into your serviceability calculation regardless. Declaring lower expenses than you actually incur doesn’t improve your application if you’re already below HEM. What matters is accuracy, not optimism.

Discretionary spending categories like dining, subscriptions, and travel are examined on bank statements by some lenders. Three months of transaction statements is a standard requirement. Unusually high spending in specific categories can raise questions, particularly if it’s inconsistent with declared expense figures.

Your credit history and existing debts

Lenders pull a credit report at the point of application. This shows all credit enquiries from the past 5 years, current loan balances, repayment history, and any defaults or court judgments. Multiple recent credit enquiries in a short period, even enquiries where no credit was actually taken, can reduce your credit score and raise flags with some lenders. Shopping around by submitting multiple full applications rather than getting indicative assessments first can create this problem unintentionally.

All existing debts are included in the serviceability calculation: personal loans, car loans, credit card limits (limits, not balances), buy now pay later accounts, and any other home loans you hold. A $15,000 credit card limit adds roughly $450 to $600 per month to assessed expenses, even if you carry no balance and pay in full each month. Closing unused credit cards or reducing limits before applying is a practical step that can improve your assessed serviceability.

How the property valuation affects your refinancing options

The lender you’re refinancing to will commission an independent valuation of the property, and the result shapes your options. If property values in your area have softened since you bought, the valuation may come in lower than your current loan balance. That puts you in a position where you owe more than the property is worth, which makes refinancing to a new lender very difficult regardless of your income or credit position.

If the valuation shows your loan is above 80% of the property’s value (meaning your LVR exceeds 80%), the new lender will typically require lenders mortgage insurance. LMI on a refinance adds a cost that may offset part or all of the rate saving you’re refinancing to capture. An LVR between 70% and 80% generally attracts competitive rates without LMI. An LVR below 60% typically unlocks the best rates available in the market.

Some lenders offer upfront desktop valuations before you submit a formal application. A broker can access these through certain lender panels, which lets you check where the valuation is likely to land before incurring a credit inquiry on your file.

What to have ready before you apply

Preparing documentation before you apply reduces delays and avoids the need to resubmit. Standard requirements include your 2 most recent payslips, 2 years of tax returns and Notices of Assessment, 3 months of bank statements across all accounts, a list of all current debts and credit limits, and an accurate breakdown of monthly living expenses. Self-employed applicants typically need their most recent 2 years of business financials as well.

Knowing where your property sits in terms of current market value is also useful before you start. An informal sense of recent comparable sales in your area, combined with an upfront check through a broker, can help you understand whether LMI is likely to be a factor and whether the refinance makes financial sense after all costs are included.