There is some opinion, backed by evidence, amongst market analysts, lending institutions and commentators, that we may have reached the current peak in the interest rate cycle. The possibility of this is obviously good news for borrowers and is supported in part by lowering inflation. The further positive is the possibility of variable home loan rates falling. In recent times as per my prior news article, some lenders have already reduced their fixed rate loans in anticipation of a slowing economy.
In view of the above lenders will be very cognisant of falling loan volumes. With interest rates at say 6% variable for home lending in a slowing economy, it’s still difficult for borrowers to simply refinance. In general terms under the Australian Prudential Regulator’s (APRA) direction, lenders should be assessing the ability to service a loan at a 3% buffered or stress position, above the rate that the borrower is paying . Higher cost of living pressures have made that refinancing even more difficult. A recent case example I had, was a client looking to refinance 1 million in debt with approximately 230k in total annual taxable income. No new borrowings involved and living costs for two adults only. No dependents. I was able to get the refinance approved , but only just, and with some massaging involved. An interesting situation evolving now, is if in the minds of lenders if indeed interest rates have peaked, they may be more comfortable in refinancing a borrower using a lower ‘buffer’ position of say 1-2%. This also of course helps banks prop up their lending volumes. There are a few financial organisations that are already offering to refinance borrowers using what can be described as an ‘alternative’ loan servicing method . It does come with some general rules as seen below, but it may just mean the difference in being trapped as a mortgage prisoner, or not:-
The new mortgage payment is lower than the current payment.
Credit scores need to be > 900 for all applicants.
No loan arrears or hardship in prior 12 months loan conduct.
Generally no additional borrowings.
All other credit commitments being well conducted in last 12 months.
Refinanced loans must be principle and interest repayments . Not interest only repayments.
Borrowers declare there is no foreseeable future material adverse change that might impact on their ability to meet loan repayments.
There is still a juggle involved in making the above work and borrowers need to be mindful that under such a refinance they may not always get one of the better more competitive interest rates.
The above demonstrates the value in using good professional and industry experienced brokers to help navigate your refinancing options. You can use our services at COMPASS to assist you in resolving this complex issue.
Call Michael on 02 6583 2211.