Refinancing And Avoiding Mortgage Prison - April 2023

By Guest Blogger, Louisa Sanghera, Principal Broker,

Zippy Financial

Over the last 12 months, borrowers have had a steady stream of grim monthly reminders from their lender, advising that their mortgage repayments are increasing… again.

With so many rate rises, some borrowers are now stuck in a so-called mortgage prison.

This happens when you’re unable to refinance to a cheaper interest rate on your home loan with another lender, because rate rises mean your borrowing power and loan serviceability has decreased – so you’re unlikely to be approved if you apply elsewhere.

And you’re paying sky-high repayments, which may be higher than you’d pay with a different bank.

Therefore, you’re stuck with your current lender in virtual “mortgage prison” – unable to refinance as you don’t qualify anywhere else, and stuck with the loan you’ve got.

If you’re stuck in mortgage prison – what can you do about it?

If you find yourself in a position where you’re unable to refinance to a cheaper lender, there may be a few things you can do about it.

First of all, look at your overall debts. Personal loans and credit cards can seriously impact your borrowing power and loan serviceability, because the banks see them as an ongoing obligation that eats away at your financial safety net.

They also consider your full credit limit as a debt, not just the balance you have outstanding. If you have $30,000 in credit card limits but zero dollars owing, your lender will assess that as a $30,000 debt and allocate 3-4% of that debt limit ($900 to $1200) as a monthly repayment.

Therefore, cancelling any credit cards you don’t need (or substantially reducing the limit) can make a big difference towards getting you out of mortgage prison.

This is just one of many strategies that we as finance brokers can recommend to help you get into a stronger financial position when applying for finance. There are plenty of other ways to help manage the situation too, including the following.

Expert tips to negotiate with your current lender:

As an experienced mortgage broker, I can share a few tools from my toolkit that borrowers can use to improve their situation:

1. Pick up the phone: Call them and ask to speak to the retention team. These are the people in customer service whose job is to keep customers with the bank, so they can look at your loan and see if there’s any ability to reduce the rate you pay.

2. Check what new customers are getting: Ask what rate they’re offering to new customers, and how does it compare to yours? If it’s lower, is there a reason you are being penalised and can you access the same rate?

3. Ask for other savings: If they can’t reduce your mortgage interest rate, is there anything else they can do to help you manage your mortgage? Eg. a mortgage repayment holiday, switching temporarily to interest-only payments, fee waivers, or discounts on insurance premiums or credit card annual fees?

This all requires some time and effort, and you don’t always know what questions to ask or what options you have. This is where working with a mortgage broker can help you manage your mortgage and add value to this tricky business of refinancing.

For instance, if you’re stuck in mortgage prison and you’ve explored the options listed in this article to no avail, a mortgage broker may be able to create a strategy and a roadmap that could allow you to refinance in 6-12 months time.

To see what your options are, contact a Mortgage Broker to see what your options are.

 Contact us today on 1300 855 022 or visit www.zippyfinancial.com.au

Louisa Sanghera - Director and Principal Award-Winning mortgage broker at Zippy Financial

Zippy Financial

Louisa created Zippy Financial after a 25-year career in banking, with the goal of using her expert financial knowledge, vision for exceptional customer service and passion for property to help her clients grow their wealth through smart property financing. Whether you are looking to buy your first home, re-finance or build your property investment portfolio, Louisa and her team of experienced brokers can help guide you through the challenging maze of finding & securing exactly the right loan for you.

M: 0414083522 or 1300 855 022
E: louisa@zippyfinancial.com.au 

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