How to Refinance When Your Income Has Changed

Income changes are a natural part of life—you might receive a promotion, change careers, start your own business, reduce hours for family reasons, or face job loss. While these changes affect your daily life, they also significantly impact your ability to refinance your mortgage. Lenders base their decisions heavily on income verification and stability, meaning any substantial change to your income situation creates new considerations and potential challenges when refinancing.

This comprehensive guide explains how different types of income changes affect refinancing, provides strategies for refinancing successfully after income increases, navigates the challenges of refinancing after income decreases or job changes, offers guidance for self-employed borrowers with variable income, and helps you understand what lenders look for when assessing changed income situations.

How Lenders Assess Income for Refinancing

Understanding lender perspectives on income helps you navigate refinancing after changes to your earning situation.

Income Stability and Reliability

Lenders don't just look at how much you earn—they assess the reliability and stability of your income. A high but erratic income is viewed less favorably than a moderate but consistent income. Lenders want confidence that your income will continue throughout your mortgage term, allowing you to make all payments reliably.

They evaluate your employment type and history, looking at whether you're permanently employed, on fixed-term contracts, casual, or self-employed. Length of time in your current role matters significantly, as does your career trajectory showing progression and stability. Industry considerations factor in, with some sectors viewed as more stable than others.

Your income documentation must demonstrate not just current earnings but likelihood of ongoing similar earnings. This is why recent income changes create complexity—lenders need assurance that your new income level is stable and sustainable.

Serviceability Calculations

Lenders use serviceability calculators to determine whether your income can comfortably cover your proposed mortgage payments plus all living expenses, other debt obligations, and a buffer for interest rate increases. These calculations are non-negotiable—if you don't pass serviceability tests, lenders must decline your application.

Income changes directly affect serviceability calculations. Increased income improves serviceability, potentially allowing you to access better rates or borrow more. Decreased income reduces serviceability, potentially preventing refinancing entirely or limiting your options.

Documentation Requirements

The type and amount of documentation lenders require depends on your income source and employment type. Standard employed income requires recent pay slips, employment contracts or letters confirming your position and salary, and bank statements showing salary deposits.

Self-employed income requires substantially more documentation including two years of financial statements and tax returns, GST returns if registered, accountant letters verifying income, and bank statements showing business cash flow.

Variable income including commissions, bonuses, or overtime requires evidence that this income is regular and reliable, typically requiring two years of history before lenders count it toward serviceability.

Refinancing After Income Increases

Income increases generally make refinancing easier, though you still need to document the increase properly and understand how lenders view different types of increases.

Salary Increases or Promotions

If you've received a significant salary increase or promotion in your current role, this generally strengthens your refinancing application. Lenders view internal progression favorably as it demonstrates job security and employer satisfaction with your performance.

Document your increase with a new employment contract or letter from your employer stating your new salary and position, recent pay slips showing the increased amount, and your employment history demonstrating progression within the organization.

Most lenders will count your new salary immediately if you're already receiving it and can prove it with pay slips. If your increase is confirmed but hasn't yet appeared in pay slips (perhaps it's effective from a future date), some lenders will still count it while others require evidence of actually receiving the higher amount.

Career Changes to Higher-Paying Roles

Changing employers for higher-paying positions is common and generally positive for refinancing, though lenders scrutinize job changes more carefully than internal promotions. They want assurance your new role is stable despite being recent.

Strengthen your application by ensuring you've passed any probationary period before applying to refinance, providing your employment contract showing you're permanent rather than fixed-term or probationary, and demonstrating the career change represents logical progression in your field rather than a random industry jump.

Some lenders prefer you to be in your new role for at least three to six months before refinancing, though others accept new employment if documentation is strong. If you haven't been in your new role long, emphasize your relevant experience and that the role represents career progression rather than a risky sideways move.

Bonuses and Variable Income

If your income has increased through bonuses, commissions, or overtime, lenders typically require evidence that this additional income is reliable and ongoing rather than one-time payments. They usually want to see this variable income consistently over at least two years before fully counting it toward serviceability.

If you've recently moved to a role with significant variable income components, you might need to wait until you have sufficient track record before lenders will count the full income potential. They might only count your base salary initially, then reassess after you've demonstrated consistent bonus or commission income.

Document variable income with at least two years of tax returns showing consistent additional income, employment contracts describing bonus or commission structures, and recent pay slips showing variable income components.

Maximizing Your Higher Income for Refinancing

When refinancing after income increases, position yourself to maximize the benefits. Update your budget to reflect your higher income and demonstrate strong financial management, consider paying down some existing debts to further improve your serviceability, and use your increased borrowing capacity strategically—whether accessing equity, securing better rates with lower LVR, or simply strengthening your application.

Don't assume higher income automatically guarantees better refinancing terms. You still need to demonstrate financial responsibility and present your application effectively.

Refinancing After Income Decreases

Income decreases create genuine challenges for refinancing, though strategies exist to improve your chances of success.

Understanding the Challenges

Decreased income directly reduces your serviceability, potentially preventing you from refinancing at all or limiting you to less favorable terms. Lenders must be confident you can afford mortgage payments on your reduced income, and if the numbers don't work, they simply can't approve your application regardless of your history or circumstances.

Be realistic about this. If your income has decreased substantially and you genuinely can't afford your mortgage payments on your new income level, refinancing isn't your solution—you may need to consider selling and downsizing instead.

Voluntary Income Reductions

If you've voluntarily reduced your hours or changed to lower-paying but more fulfilling work, lenders assess whether this reduction appears sustainable. They want confidence you're not likely to struggle with reduced income and default on your mortgage.

Strengthen your application by demonstrating that your reduced income still comfortably covers all expenses and mortgage payments, showing you have substantial savings or other assets providing financial security, and explaining that your income reduction serves genuine lifestyle goals rather than being forced by circumstances.

If you've reduced hours to care for children or elderly parents, many lenders are understanding provided the numbers still work. If you've reduced income to pursue passion projects or semi-retirement, ensure you can demonstrate financial stability despite lower earnings.

Involuntary Income Reductions

Job loss, redundancy, or forced hour reductions create more serious refinancing challenges. If you're currently unemployed or underemployed, most lenders simply won't refinance your mortgage regardless of your previous income or employment history.

You typically need to be in new employment for at least three to six months before lenders will consider refinancing applications. During this probationary period, focus on stabilizing your income situation rather than trying to refinance.

If you've found new employment at lower income than before, emphasize job security and permanence, demonstrate that your budget works with reduced income, show you have emergency savings providing buffer for unexpected expenses, and highlight any positive aspects like reduced commuting costs or improved work-life balance.

Strategies When Serviceability Is Marginal

If your reduced income makes serviceability marginal, several strategies might help. Pay down other debts before applying to refinance, improving your debt-to-income ratio. Extend your mortgage term if you're currently on a shorter term, reducing monthly payments and improving serviceability.

Consider whether your partner's income or other household income can be included in the application if you weren't previously joint borrowers. Demonstrate additional income from boarders, rental income, or other sources that improve your overall financial position.

Build up your emergency savings and demonstrate strong financial management to reassure lenders that despite reduced income, you're financially responsible and able to manage your mortgage.

When Refinancing Isn't Possible

Sometimes income decreases make refinancing impossible—your reduced income simply won't support your current mortgage regardless of strategies you employ. If this is your reality, face it quickly rather than spending months pursuing impossible refinancing.

Your options might include selling your property and downsizing to something more affordable with your reduced income, negotiating with your current lender for hardship arrangements if you're struggling with payments, or finding ways to increase your income through additional work or other sources.

Burying your head in the sand and hoping refinancing will somehow work despite inadequate income only delays necessary decisions and can worsen your financial position.

Changing from Employed to Self-Employed

Becoming self-employed is increasingly common but creates substantial refinancing challenges due to lenders' concerns about income stability and reliability.

The Two-Year Rule

Most New Zealand lenders require self-employed borrowers to have at least two full years of financial statements and tax returns before they'll approve mortgage applications. This requirement reflects lenders' need for evidence that your business is viable and generates consistent income.

If you've recently become self-employed—within the last two years—refinancing is extremely difficult regardless of how well your business is doing or what you're earning. You typically must wait until you have two full years of financial history before lenders will consider applications.

Some lenders make exceptions for professionals like doctors, lawyers, or accountants who've moved from employment to self-employed practice in the same field, particularly if you can demonstrate you've taken over an established practice with proven income. However, these exceptions are uncommon and require very strong documentation.

Documenting Self-Employed Income

When you do have sufficient history, self-employed income documentation is substantially more extensive than for employed borrowers. You need financial statements for your business for the last two years prepared by a registered accountant, personal and business tax returns for the last two years with Inland Revenue Department notices of assessment, and GST returns for the last year if you're GST registered.

Lenders also require bank statements for both personal and business accounts, typically covering six months, and a letter from your accountant confirming your income and business financial position. Some lenders want evidence of business contracts or forward orders demonstrating ongoing work.

How Lenders Calculate Self-Employed Income

Lenders don't simply use your stated income or what you draw from your business. They analyze your financial statements to determine sustainable income, often taking the lower of the last two years' income to be conservative.

They add back certain expenses like depreciation that don't represent actual cash outflows, but deduct one-time income items that aren't repeatable. The result is "assessed income" that might differ significantly from what you consider your actual earnings.

If your business income is highly variable or shows declining trends, lenders view this as risky and might decline applications or use very conservative income assessments that reduce your serviceability.

Improving Your Chances as a Self-Employed Borrower

To maximize refinancing success when self-employed, maintain clear separation between business and personal finances with separate bank accounts, use a registered accountant to prepare financial statements, demonstrating professionalism, keep excellent financial records showing organized business management, and ensure your tax returns are up to date with IRD with no outstanding issues.

Also build strong savings demonstrating financial stability despite variable business income, maintain consistent drawings or salary from your business showing reliable income stream, and consider whether your business structure (sole trader, partnership, company) affects lender perceptions, potentially restructuring if beneficial.

Job Changes and Career Transitions

Changing jobs or careers creates refinancing complications even when income remains similar, as lenders value employment stability.

Recent Job Changes

If you've changed employers within the last three to six months, some lenders view this as reducing stability and prefer you to wait until you've been in your role longer. Probationary periods particularly concern lenders as employment isn't fully secure until probation ends.

However, if your job change represents career progression in the same field, shows increased income or responsibility, and you can demonstrate strong employment history overall, many lenders will refinance despite recent change.

Strengthen your application by providing employment contracts showing you're permanent post-probation, letters from employers confirming your position and performance, evidence that your role is secure with no concerns about performance, and explanation of how the change represents logical career progression.

Career Changes to Different Industries

Changing careers to entirely different industries raises more lender concerns than switching employers in the same field. They worry you might lack experience or long-term commitment to your new career, creating income instability risk.

If you've made a significant career change, expect closer scrutiny. Emphasize any transferable skills or qualifications relevant to your new field, demonstrate you've successfully completed any probationary period, show your new career is established with progression opportunities, and explain logical reasons for the change rather than appearing to jump randomly between unrelated fields.

Lenders view mid-career changes to pursue passion projects or lifestyle businesses more skeptically than strategic career moves for advancement or income growth.

Fixed-Term Contract Positions

If you've moved from permanent employment to fixed-term contracts, lenders assess the security of your income more carefully. A single fixed-term contract creates uncertainty about income continuation when it expires.

Strengthen your position by demonstrating history of rolling contracts in your field showing this is normal employment pattern, evidence of high demand for your skills suggesting contract renewal or new contracts are likely, substantial savings providing buffer if contracts pause, and if possible, confirmation that your current contract will be renewed or other work is lined up.

Some industries like education, healthcare, or IT contracting commonly use fixed-term arrangements. If you're in such fields, emphasize this is standard rather than exceptional.

Returning to Work After Absences

If you've been out of the workforce and are returning—perhaps after parenting, caring for family, health issues, or studying—lenders assess your reintegration carefully. They want confidence your return is stable rather than temporary.

Ideally, be back in employment for at least three to six months before applying to refinance, demonstrating your return is working out. Provide employment contracts showing permanent positions rather than trial or temporary arrangements, explain your absence period with context showing it was planned rather than forced by inability to find work, and demonstrate your skills and qualifications remain current and relevant.

Special Income Situations

Various less common income situations create unique refinancing considerations.

Rental Income

If you're purchasing a property with rental income or refinancing to access equity from a rental, lenders typically only count seventy to seventy-five percent of rental income toward serviceability, acknowledging vacancy periods and maintenance costs. You need tenancy agreements and property statements proving rental income, evidence the property is tenanted or easily tenantable, and demonstration that rental income is stable and market-appropriate.

Investment property income assessments are conservative, so don't expect lenders to count full rental amounts even if you've never had vacancies.

Trust or Company Income

If you receive income through family trusts or companies you control, documentation becomes complex. You need trust deeds or company documentation showing your relationship to the entity, financial statements for the trust or company, evidence of distributions or salary you receive, and accountant letters explaining the structure and your income.

Lenders scrutinize these arrangements to ensure income is genuine, sustainable, and legally structured rather than being vehicles for tax avoidance or asset protection that reduce your actual available income.

Investment Income

Income from investments like dividends, interest, or capital gains can supplement your employment income but is typically counted conservatively. Lenders want evidence that investment income is consistent and reliable, usually requiring two years of history before counting it significantly toward serviceability.

Volatile investment income or capital gains that vary dramatically year to year won't be counted as heavily as stable dividend or interest income from conservative investments.

Professional Guidance for Income Change Situations

Refinancing after income changes benefits greatly from professional advice given the complexity of properly positioning your application.

At Luminate Financial Group, we help New Zealand homeowners navigate refinancing after income changes by assessing realistically whether your changed income supports refinancing, identifying which lenders are most likely to view your specific income situation favorably, advising on optimal timing for applications based on your circumstances, and helping you gather and present documentation to maximize your chances of approval.

We've helped clients successfully refinance through countless income change scenarios including career transitions, self-employment starts, income reductions, and job changes. Our experience with different lenders' criteria and appetites means we know which lenders to approach for different situations, saving you from applications likely to be declined.

We also provide honest feedback when refinancing isn't currently achievable with your income situation, helping you understand what needs to change and when you might realistically refinance in future.

Experienced income changes and need to refinance? Contact Luminate Financial Group for expert guidance. We'll assess your situation honestly, identify the best strategies for your circumstances, and help you present your application in the strongest possible light.