A tax debt can make refinancing more difficult than people expect.

In this case, we were helping a couple who needed to refinance their existing home loan and clear an outstanding tax debt at the same time.

The problem was that the mainstream banks we looked at were not prepared to support the refinance while the tax debt remained in place.

Rather than wait indefinitely or try to force the application somewhere it did not fit, we approached the problem in two stages.

Stage One: Refinance and Clear the Tax Debt

The first priority was to clear the tax debt and improve the overall lending position.

That meant using a lender that was prepared to refinance the existing home loan and include the amount required to repay the tax debt.

The rate was higher than we would normally expect from a mainstream lender, but that was not the main objective at this stage.

The purpose of the first refinance was to solve the issue that was preventing the clients from accessing the broader lending market. Once the loan settled, the tax debt was repaid and the clients were in a much cleaner position.

Why the Cheapest Rate Wasn’t the Priority

When someone is refinancing, rate is usually one of the first things they want to discuss, and understandably so.

But sometimes there is another issue that needs to be dealt with before the rate becomes the main consideration.

In this case, the lower-rate mainstream lenders were not prepared to support the transaction while the tax debt remained.

So rather than asking which lender had the cheapest rate, the more important question was which lender could actually solve the immediate problem and put the clients in a better position afterwards.

Stage Two: Review the Loan Again

The first refinance was never intended to be the final destination.

A few months after the tax debt had been cleared, we reviewed the clients’ position again.

With the tax debt no longer sitting in the background, we were able to look at a broader range of mainstream lenders and compare the available options.

That review ultimately allowed the clients to refinance again to a mainstream lender on a more competitive rate.

The Second Review Was Planned From the Start

This is the part of the case that I think matters most.

We knew why we were using the first lender and we also knew what needed to change before we could consider moving the loan again.

The first loan solved the immediate issue. It was not intended to be a long-term solution.

That meant the second review was not an afterthought. It was part of the approach from the beginning.

Sometimes the lender that suits a client’s position today is not the lender that will suit them six months later. The important part is understanding why that lender is being used and when the position should be reviewed again.

Can Tax Debt Affect a Home Loan Refinance?

Yes.

An outstanding tax debt does not automatically mean a refinance cannot be done, but it can reduce the number of lenders available and change how the application needs to be approached.

Different lenders can have different policies around outstanding tax liabilities, repayment arrangements and whether the debt can be cleared as part of the refinance.

That is why the full position needs to be understood before deciding which lender is worth approaching.

The Outcome

The clients were able to refinance their existing home loan and clear the tax debt first.

Once that issue had been resolved and some time had passed, we reviewed the lending again and moved them to a mainstream lender on a better rate. Tax debt.docxDOCX

The two refinances had different purposes.

The first was about solving an immediate lending problem and getting the clients into a stronger position.

The second was about improving the longer-term outcome once the clients had access to a broader range of lenders.

That is why I do not think every refinance should be judged purely by the rate available on day one.

Have a Tax Debt and Looking to Refinance?

If you have an outstanding tax debt and are looking to refinance, the first question is usually what lenders are actually prepared to support the position now.

From there, it may also be worth considering whether the loan should be reviewed again later once the underlying issue has been resolved.

If you would like us to look at your current loan, tax debt and the refinancing options that may be available, get in touch.