In the current economic environment where variable home loan rates are back up over 5% , many existing home borrowers have been trapped on current high interest rates with their existing lender. Even an attempt to renegotiate their rate to a lower position, can still often leave them priced well above what’s on offer to ‘new’ borrowers in the market place.
There are two main reasons why this has presented such a major problem for borrowers:-
Firstly , lenders are assessing a borrower’s loan servicing capacity at the applicable interest rate plus the prudential buffer requirement of minimum 3%. Therefore loan servicing is now being assessed on an interest rate up over 8% at present. (18) months ago that loan servicing assessment rate was in some cases below 5%.
Secondly, back in 2010 saw the introduction of the National Consumer Credit Protection laws. A core part of these laws surrounds what is referred to as ‘Responsible Lending’. It still exists today and it places the responsibility for verification of a borrower’s income and expenses, amongst other items that are pertinent to a loan application. The importance of this means that brokers and bank lending officers MUST verify documentation in a loan pre assessment. Therefore it doesn’t matter whether a borrower has always met their commitments without default, even in a climate of rising interest rates, it still has to be proven ‘on paper/documentation’ that they are able to afford a loan otherwise these laws can be transgressed, resulting in heavy penalties for the broker/banker and the clients.
Thus we see ongoing evidence of ‘mortgage prisoners’. This means its even more important for you to plan how this is best managed, considering options to remove small ancillary debts, as one example. You should also seek professional ongoing advice from experienced industry operators. Professionals that can deal with all differing personal household circumstances. People that understand the needs of both standard employed borrowers and those that are self-employed.
At COMPASS, we have these people.