Owning a home is a dream come true for many, but for some borrowers, that dream is now turning into a financial nightmare. Rising interest rates are leaving mortgage holders trapped in high-interest home loans, making it increasingly difficult to meet their mortgage obligations. Fortunately, financial institutions have recognised this issue and are introducing innovative solutions to help these mortgage prisoners regain control of their finances. A recent solution a few banks have come up with is assessing home loan applications on a 1% serviceability buffer instead of the 3% serviceability buffer. This solution is known by different names depending on which bank you speak to.
- NAB – Alternative Refinancing Assessment
- CBA – Refinance Exception Assessment
- WESTPAC – Streamline Refinance
- BANKWEST – Refinance Exception
What makes a homeowner a mortgage prisoner?
Mortgage prisoners are borrowers who find themselves stuck in loans with high-interest rates, often above the current standard variable rates. As a result, they end up paying more than they should, leading to financial strain and limited flexibility in managing their finances. The traditional approach to refinancing involves strict serviceability criteria, making it difficult for these borrowers to access better loan terms and reduce their interest burden. Recognizing this challenge, lenders have introduced the Refinance Exception Assessment to provide a lifeline to those who demonstrate strong repayment histories and good credit behavior.
How can Refinance Exception Assessment Help?
Refinance Exception Assessment, also known as Streamlined Refinance or Alternative Refinancing, is a tailored approach to refinancing that offers eligible borrowers a way out of high-interest loans. The main goal is to ease the burden of high-interest rates and bring borrowers back in line with standard variable rates by relying on their proven track record of managing their existing loan commitments. This assessment process looks beyond the traditional serviceability criteria, taking into account borrowers’ strong financial standing and credit history.
How can you qualify for the Refinance Exception Assessment?
To be eligible for the Refinance Exception Assessment, borrowers must meet specific criteria set by the lending institution. While the criteria may vary from one lender to another, some common eligibility requirements include:
- Impeccable Repayment History: Borrowers must demonstrate a history of timely repayments on their existing loan commitments, highlighting their ability to manage debt responsibly.
- Clean Credit Record: A minimum credit score may be required, and borrowers should have no significant credit issues or delinquencies in their credit reports.
- Loan Term and Structure: The refinanced loan(s) must typically have a 30-year term with Principal and Interest (P&I) repayments.
- Loan-to-Value Ratio (LVR) and Loan Mortgage Insurance (LMI): The LVR should be within 80% or below, to ensure sufficient equity in the property and no LMI is required.
- Limit on Additional Lending: The refinancing should not include additional lending, cash-out, or debt consolidation beyond the scope of existing home loan(s).
- Loan Amount Restriction: The loan amount being refinanced should not exceed the existing home loan limit plus the lower of $10,000 or 1.00%. This provision allows for fees and interest while ensuring the refinanced amount remains manageable for the borrower.
- Number of Borrowers Restriction: Only individual applicants and up to two borrowers can apply for the refinance
- Lower interest rate: The interest rate on the new loan facility is the same or lower compared to the customer-advised rate on the existing facility
How does the Refinance Exception Assessment work?
The application process for Refinance Exception Assessment is streamlined and efficient. Borrowers need to work with their chosen lender or mortgage broker to assess their eligibility and gather the necessary documentation. The lender will use specific serviceability calculators to evaluate the borrower’s repayment capacity and creditworthiness based on the provided information. If the borrower meets the criteria, the lender will proceed with the refinancing process.
How can mortgage brokers help you?
Mortgage brokers play a crucial role in guiding borrowers through the Refinance Exception Assessment process. They are responsible for conducting an initial assessment of the borrower’s financial situation and determining eligibility for this specialized refinancing option. Importantly, brokers need to ensure that the borrower’s financial health is stable and that they are not already facing financial difficulties or hardship. Refinance Exception Assessment is intended to offer a solution for financially stable borrowers seeking better loan terms, not as a quick fix for troubled borrowers.
The Refinance Exception Assessment, or Streamlined Refinance, is a beacon of hope for mortgage prisoners burdened by high-interest home loans. By recognizing borrowers’ strong repayment histories and credit behavior, lenders are offering tailored solutions to empower them with better loan terms and more manageable interest rates. This innovative approach to refinancing demonstrates the financial industry’s commitment to finding solutions for those in need and contributing to a brighter and more secure future for homeowners. If you believe you may be a mortgage prisoner, consider exploring the Refinance Exception Assessment option with your lender or mortgage broker to see how it can help you reclaim control of your finances and build a more stable financial future.
Maria Papa is a senior property and finance expert specialising in home loans, investment loans, self-employed loans, alt doc loans, car loans, personal loans and loan protection. She has offices in Sydney, Melbourne and Manila. If you have questions, you can call Maria at 0430 144 008 or email her at mpapa@maverickfinance.com.au.