Almost 880,000 borrowers will need to find hundreds or thousands of dollars more each month when their fixed-rate periods expire this year.
And for many, refinancing loans with a new lender (and a cheaper rate) has proven impossible due to strict criteria from the banking regulator that force lenders to add as much as three percent onto a loan when assessing mortgage applications so that the bank can be sure borrowers can cope with possible rate rises.
Until recently, it looked like many borrowers were forced to stick with their current lender – and grin and bear these new sky-high rates.
With current interest rates roughly at 5.5 per cent, adding 3 per cent on top means new loans are assessed at 8.5 per cent – making it hard for borrowers to prove they can service a new loan should rates go up.
As a result, many are trapped with their current lender – but some banks are now adopting more generous policies for assessing applications.
Currently, households servicing a $550,000 mortgage will suffer an $891 increase in monthly repayments, with highly indebted households on the hook for an even larger increase. Someone with a $1 million mortgage would have to fork out an extra $1620 each month.
Until recently these borrowers looked trapped. But some banks have announced a softer policy for refinancing loans; rather than being assessed at 8.5 per cent, they are now likely to be assessed at 5.05 per cent.
While this new policy is great news for those who are trapped, the banks are not offering it to everyone, there are some conditions such as; borrowers must have good credit histories, excellent repayment histories and all they can do is a straight refinance.
Overall, the RBA estimates 90 per cent of the fixed rate loans rolling off this year or next year will have to wear mortgage repayment increases of at least 30 per cent.
But this policy softening may help some get out of mortgage prison.
If you want to discuss how to get out of mortgage prison and refinance at a lower rate, Aaron Hickey
Mortgage Broker | Pymble
5/55 Grandview St, Pymble NSW 2073 Australia
P: 1300 306 868 | M: [0429 597 371]
Aaron Hickey is a credit representative number 495791 of BLSSA Pty Ltd ACN 117 651 760 (Australian Credit Licence 391237)