Interest rates are going to rise and the impact of 12 increases has resulted in many Australians experiencing mortgage stress. Borrowers feel imprisoned by their rising mortgages, but you can do something to escape mortgage stress if you act now.
Almost 880,000 borrowers will need to find hundreds or thousands of dollars more each month when their fixed-rate loan periods expire this year. With recent developments in the past week, there is a strong possibility that the Reserve Bank will increase the rate this month!
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 interest rate 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 at 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 borrowers 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 $1,620 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.
Shop around for a better deal – Talk to our inhouse broker today!!
If you feel like you are paying too much in interest, it’s time to start shopping around for a better deal. There are plenty of competitive loans out there, so it’s worth speaking with a broker to ensure you’re on the best deal for your situation.
How can we help?
If you want to discuss how to get out of mortgage prison and refinance at a lower rate, please contact , please feel free to contact our office via email –info@investplusaccounting.com.au or phone 02 9299 7000 to either speak with someone or arrange a time for a meeting so we can discuss your requirements in more detail. You can arrange a free 15 minute no obligation chat to discuss your options. Please arrange an appointment with our office by clicking here
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