How Long before Successful Mortgage Refinance after Default Listings?

bobbified on 29/03/2022 - 14:24
Last edited 29/03/2022 - 14:25

About five or six years ago, I had a medical issue and was unable to work for about six months and had no income. My financials took a huge hit and was stubborn about asking for help because I didn't want people to worry. Long story short, it took me about 12 months to financially recover and I ended up with a couple of defaults listed against my name. These defaults were paid within a couple of months, but nevertheless, the records were already there. It took me a couple of years after that to save up almost 50% deposit for an apartment and I managed to get a mortgage with a non-bank lender. When I look at my credit file now, one of the defaults is no longer there. I've got just under a year to go before the second (and final) default record is cleared off my file (stays on for five years). Over the last three years or so since I've had this mortgage, I've had no late payments and I've maintained a clean record.

I did have a low-limit credit card that I kept from back then and hadn't applied for anything new. I've been thinking about refinancing my mortgage (with a lower rate) and I did a little test by trying to increase the limit on that credit card by $1,000 and that was rejected. Logic tells me that if they're not willing to approve a $1,000 increase, then they're unlikely to approve an actual mortgage. The mortgage amount that I have is the equivalent of one year's gross salary so there's plenty to cover the repayments. (I am not looking at paying it off real quick by dumping as much of my salary into it as possible)

Has anyone successfully applied for a mortgage through one of the bigger lenders (with one of the lower rates) after having a default against their name? I'm wanting to know how soon I'm likely to get approval to refinance. I know I can apply every now and then to see what happens, but I'm also trying to avoid credit enquiry records on my file if I can.

Financial Home Loan

Comments

  • Halo375 on 29/03/2022 - 14:41
    +2

    The credit card approval could have been managed by an automatic approval system which rejects anything that isn’t perfect. A bank loan would be considered more carefully, if you show evidence that the default has been cleared you might be okay. Doesn’t hurt to talk to one of the banks and see what the process is for a review.

    • bobbified on 29/03/2022 - 14:44

      The credit card approval could have been managed by an automatic approval system which rejects anything that isn’t perfect.

      It is an automatic thing - I haven't gone through the mortgage process at a big 4 bank before, but I thought that the system assesses the application based on a built-in set of rules too. Do the bank managers still have discretion around that approval process?

  • mortgagebroker on 29/03/2022 - 14:48
    +6

    Stop applying for credit.
    Go see a mortgage broker as they will tell you which lenders are available to you.

    Without knowing the amount, type and date of the defaults I cannot give you advice.

    First thing is to call your current lender and see if they can reduce your rate without refinancing. They may be able to move you to a prime product without refinancing.

    Saving 0.5% on a mortgage so low may not be worth the time, effort and cost to refinance.

    • bobbified on 29/03/2022 - 15:04

      Stop applying for credit.

      Yes, I've avoided any credit applications in the last 4 years. That $1,000 credit increase application was just to see whether the default was still impacting my ability to get credit.

      Without knowing the amount, type and date of the defaults I cannot give you advice.

      The amount was a $10k credit card. It was paid off within a month or two of being listed, so it's been a paid default for the last four years.

      First thing is to call your current lender and see if they can reduce your rate without refinancing.

      The rate at the moment is about double (4%) - I do realise it's a lot, but it's my own stupidity that allowed the defaults and I accept that. Part of the reason I want to go back to a maintstream lender is to be able to get out of this non-bank lender. Even without a detault appearing on my record right now, lenders may ask why I am with this lender in the first place.

  • mini2 on 29/03/2022 - 14:50

    Talk to a broker STAT. Probably Pepper, Liberty these sorta last resort shops will look at you and the interest rate won't be pretty.

    • bobbified on 29/03/2022 - 15:07

      Liberty these sorta last resort shops will look at you and the interest rate won't be pretty.

      I've been with these last resort lenders for the past three years. I'm trying go into a mainstream lender where the rates are much lower.

    • ol mate on 29/03/2022 - 15:32

      In my situation (looking for IP, getting to DTI cap with existing house), Pepper weren't TOO bad. They were quoting 3% which was comparable to an investment loan from a Big4.

  • tsunamisurfer on 29/03/2022 - 14:51
    +1

    Most people at the bank do not know what goes into the calculation of the Yes / No application answer let alone the workings / possible answer.

    Some brokers / lending specialists will have an inkling that there may be a trend that a defaulter is more often that not successful or unsuccessful but these are gut feelings.

    No one will know until you punch in all your details and execute an assessment against the refinance algorithm, which triggers a credit query, which you want to avoid.

    • bobbified on 29/03/2022 - 15:22

      No one will know until you punch in all your details and execute an assessment against the refinance algorithm, which triggers a credit query, which you want to avoid.

      🤣🤣 that's exactly why I'm asking if anyone else has already been through this! haha

  • hashtagbargain on 29/03/2022 - 15:32
    +2

    Credit history has records on file for 7 years. You’ll soon be liberated of the past. Good luck to you OP.

    • bobbified on 29/03/2022 - 15:39

      Thanks! Paid defaults are only five years. I've got until November before the final record disappears!

  • rektrading on 29/03/2022 - 15:38

    Are credit checks that important nowadays considering that people can borrow $100,000s or millions from non-legacy banking/lenders?

    • bobbified on 29/03/2022 - 15:43
      +1

      That is very true that you can probably borrow regardless, but the interest rate is set to reflect the level of risk they assess you as and the credit check is what helps them determine that. If they can't determine your level of risk, they will either not lend it to you or err on the side of caution and jack up the rate.

    • El-Rhi on 29/03/2022 - 15:47
      +1

      They are important to lenders who are highly regulated by APRA and ASIC. A credit check would be one of many things that would be required to meet responsible lending obligations.

      For the unregulated lenders, probably not so important.

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