I’ve got a ripper update for you if you’re stuck with your current lender and struggling to refinance. As interest rates climbed, you might have heard the term “mortgage prison” buzzing around. But what the heck does it really mean, huh?
Let me break it down for ya. When banks size you up for a mortgage, they’re checking out three main factors: your income, your expenses, and your mortgage payments.
Now, let’s zoom in on your mortgage payments. Historically, banks have been playing a trick on us by assessing applications using an interest rate that’s 3% higher than the actual rate. Sneaky, right? This is their way of stress testing to see if you can handle your mortgage when the market decides to play hardball.
But hold on, this is where things got real over the last couple of years. As the interest rates decided to climb like a spider up a drainpipe, a problem emerged. People and families who had plenty of options to refinance just two years back suddenly found themselves failing that stress test. And you know what that means, don’t you? They were trapped, forced to stick with their existing lender and loan terms – a proper ‘mortgage prison’.
But wait, there’s some good news coming your way! Some top-notch banks, in cahoots with the regulators, have decided to throw us a lifeline. They’re adjusting that stress test criteria for refinance applications, bringing it down from 3% above the actual rate to just 1%.
And let me tell you, when I dug into this change, I was bloody stoked by the tangible impact it’s having:
Existing debt able to be refinanced before & after sensitivity rate adjustment
Household Income p.a.
Before (3% sensitive rate)
After (1% sensitivity rate)
$150,000
$570,000
$680,000
$200,000
$815,000
$965,000
$250,000
$1,120,000
$1,330,000
Assumptions:
Assume -household expenses $60,000
Base interest rate of 5.84%
25-year loan term
It’s a game-changer for two reasons:
Firstly, from an economics point of view, this criteria change is focusing only on existing debt. No ‘new’ debt fueling purchases means house prices should stay in line, putting less pressure on interest rates to rise further.
And secondly, this is where it gets ripper for you, my friend. Your application to refinance is now more likely to get a warm welcome from more lenders, giving you the chance to score better loan terms and finally release some of that financial stress we’ve all been carrying like a heavy swag.
So, there you have it! This opportunity is your ticket to becoming a better version of yourself financially. Seize the day, take advantage of this timely luck, and let the good times roll!
Stay money-savvy!
If you’re stuck in a mortgage and struggling to refinance, check out our Home Loan Refinancing page and see how our lending specialists can help.
Any advice on this site is general nature only and has not been tailored to your personal objectives, financial situation and needs. Please seek personal advice prior to acting on this information. Any advice on this website has been prepared without taking account of your objectives, financial situation or needs. Because of that, before acting on the advice, you should consider its appropriateness to you, having regard to your objectives, financial situation or needs.
