In a bid to help borrowers break free from mortgage prison, Westpac has started implementing new serviceability rules for those wanting to refinance.
The changes, which took effect 23 May 2023, will see qualified refinancers within Westpac and subsidiaries (St George, Bank of Melbourne, and BankSA) undergo a modified serviceability assessment.
The modified serviceability assessment rate will still exceed the bank’s floor rate but will not follow the standard +3.0 percentage points rule by the Australian Prudential Regulation Authority (APRA).
To be eligible, the borrower must have a good credit score (at least above 650) and must not have missed a debt repayment over the past year.
Interest-only loans, debt consolidation, and those with lender’s mortgage insurance are not qualified under the modified assessment rate.
The current loan serviceability rule recommends banks to assess borrowers with a buffer of 3.0 percentage points. For a home loan with 5% interest rate, the borrower will be assessed at 8%.
In a statement early this year, APRA said the revised serviceability buffer remains appropriate given current market conditions.
Rate Money CEO Ryan Gair said 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.”
Mr Gair said many borrowers applied for a secured loan years ago at a much lower rate — a borrower who applied for a $700,000 home loan and assessed at only 5.5% interest rate would only be able to borrow $500,000 in the current standards.
“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,” he said.
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% |
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