A mortgage expert is calling for the Australian Prudential Regulation Authority (APRA) to change the rules, particularly in terms of loan serviceability, for home loan refinancers.
Rate Money CEO Ryan Gair said while having a buffer for new loans make sense considering the current higher-risk environment, it is unfair to subject refinancers to the same rules.
“APRA should have separate recommendations to regulate existing borrowers — it could remove the buffer and allow a dollar-for-dollar refinancing,” he said.
“This recognises that existing borrowers have already proven they can service their loans and allow them to free up some of their money by refinancing to a loan with a lower rate.”
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Buying a home or looking to refinance? The table below features home loans with some of the lowest interest rates on the market for owner occupiers.
| Lender | Home Loan | Interest Rate | Comparison Rate* | Monthly Repayment | Repayment type | Rate Type | Offset | Redraw | Ongoing Fees | Upfront Fees | Max LVR | Lump Sum Repayment | Additional Repayments | Split Loan Option | Tags | Features | Link | Compare | Promoted Product | Disclosure |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
6.04% p.a. | 6.08% p.a. | $3,011 | Principal & Interest | Variable | $0 | $530 | 90% | 4.6 STAR CUSTOMER RATINGS |
| Promoted | Disclosure | |||||||||
5.99% p.a. | 5.90% p.a. | $2,995 | Principal & Interest | Variable | $0 | $0 | 80% |
| Disclosure | |||||||||||
6.14% p.a. | 6.16% p.a. | $3,043 | Principal & Interest | Variable | $0 | $350 | 60% |
Mr Gair said refinancers will be able to get significant savings with a lower rate, placing them in a better financial position in the long run.
Furthermore, Mr Gair said the rules should change to just requiring refinancers to demonstrate their current income can service the repayments.
“Due diligence via a positive or comprehensive credit reporting would allow banks to see key details about the borrower, from their limits across all their loans to reports on their monthly repayments, to offer a finer picture of their capacity,” he said.
How the current serviceability buffer works
The loan serviceability buffer is used by lenders as contingency — this means that they actually consider whether a borrower can still afford mortgage if interest rates are to rise.
Currently, the minimum serviceability rate buffer is at 3.0 percentage points. This means that for a 5% interest rate, the borrower will be assessed for an 8% rate.
“The buffer exists to minimise financial risk and prevent destabilisation in the lending sector — if borrowers could only service their loan when rates are low, it risks defaults once inflation pushes rates up,” Mr Gair said.
However, Mr Gair said the buffer it has also put borrowers in a mortgage prison, preventing them from being able to easily refinance.
“If you applied for and secured a loan a few years ago when rates were lower, your lender might have looked at your ability to repay at 5.5% so they allowed you to borrow $700,000,” he said.
“Today, because of the number of rate rises we’ve experienced, lenders will be assessing your ability to repay at a figure closer to 9%, so you might only be able to borrow $500,000.”
“This means, unless you’ve managed to knock $200,000 off your loan between rate rises, your borrowing capacity is not sufficient to refinance to a new loan.”
In a statement early this year, APRA chairperson John Lonsdale said the revised serviceability buffer remains appropriate given current market conditions.
“APRA’s view is that the 3 percent level remains prudent given the potential for further interest rate rises, high inflation, and risks in the labour market,” he said.
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Photo by monthirayodtiwong on Canva.
Collections: Interest Rates Mortgage News
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