Some good news as Mortgage Prisoners can now Breakfree!
Recently we discussed the ‘simple application process’ for refinances. The one where “as long as your repayment was going to be lower than your current one” you could potentially refinance your mortgage after meeting a less stringent serviceability assessment (some other terms and conditions had to be met as well). Since then we’ve had a few more lenders jump on this bandwagon and offer higher than normal borrowing capacity.
Normally when you apply for a loan, a lender has to stress test your mortgage to see if you can make a repayment if the interest rates go up. The stress test is what is called the buffer. So they take the current rate and add 3% to it. If you apply for a loan at 6% the lender wants to know if you can pay it back if the rate jumps to 9%.
There are banks that now are only applying a 1% buffer for refinance applications.
APRA (the Australian Prudential Regulation Authority), which regulates the banks, have allowed this practice. There’s NO WAY they would do that if they were expecting a lot of rate rises from the RBA in the short term.
As it stands, 3 of the 4 big banks think we are done with rate rises in the short term since they are only adding a 1% buffer to some refinance applications instead of the normal 3%.
If you are one of those mortgage prisoners who couldn’t refinance your home loan a few months ago there is a fair chance that you can now escape that gaol and move to a lender offering a lower interest rate.
It got a lot harder recently to get an application approved because of the rate rises, the high assessment rate, the high cost of housing and the rising cost of living. So here we are. The buffer rate is coming down and hopefully, we can start to move on with helping people who need to refinance. It is a key sector of the economy.
This May Also Apply To Home Purchases And Investment Purchases.
There are now some non-bank lenders who are adding as little as 1% to the interest rate when determining your borrowing power. So if you are looking to purchase an owner-occupied or investment property your borrowing power may now be higher than it was just a few months ago.
If you’ve been looking at refinancing, moving or investing – but were concerned if you couldn’t get approved – then please get in touch by calling 1300 661 211 or going to we can look and see if we can help you make your next purchase work in this new environment.
And if you’re looking for more reasons to Refinance Your Home Loan here are 7 Reasons why should do it sooner than later.