Refinancing surge brings relief for homeowners

The lending and borrowing environment in Australia has changed drastically.

As a result, more and more borrowers are breaking out of ‘mortgage prison’ and refinancing their home loans to more competitive options.

If you’ve been trapped with the same lender for some time, you may be able to break free and find a more suitable home loan elsewhere.

What is mortgage prison?

While there are no barred windows, high walls or guard towers in a ‘mortgage prison’, it can still feel quite burdening if you’re a borrower locked into one.

A mortgage prison is where a borrower cannot refinance their home loan, often because they don’t meet serviceability standards or because of insufficient equity. This inability to refinance means borrowers end up stuck with a lender, potentially forking out more in interest than they should be.

A variety of factors can lead to the mortgage prison scenario, including falling property prices, interest rate hikes or changes in income.

Many Australians became mortgage prisoners after taking advantage of low fixed-rate loans during the COVID-19 pandemic. When their fixed rate terms eventually came to an end, they found themselves facing rising variable interest rates they struggled to afford.

What’s the latest with the current lending landscape?

Many borrowers who previously found themselves in a mortgage prison have been released and are able to refinance to more competitive home loans – and that’s exactly what they’re doing.

Australians have taken advantage of improved borrowing conditions to switch to more competitive deals. According to recent RBA data, the gap between rates for existing and new owner-occupiers has shrunk to a record low of just 0.04 percentage points, suggesting that refinancing is increasingly on the radar for borrowers.

Why refinance?

Some key motivators to refinance include:

• To secure a lower interest rate (and reduce your mortgage repayments)
• To change your loan term (paying your home loan off faster reduces the interest you pay over the life of your loan)
• To unlock equity for big-ticket purchases, like an investment property, new car or your kids’ education.
• To access a loan that better suits your needs (for example, with interest-saving features like an offset account or redraw facility)
• To consolidate debt.

What to expect next?

The number of people refinancing home loans is expected to rise.

Borrowers will need to manage their mortgage repayments without any expectation of immediate relief and homeowners are being urged to review their loans and shop around for more competitive deals.

Like to chat?

With the market continuing to shift, it might be worth taking another look at your home loan to see if it’s still working for you.

Your serviceability may have improved, or you may have more equity than you thought and be able to refinance to a more suitable home loan. Remember, refinancing could make a difference to your loan over time, so it’s worth considering.

Contact us  

Finance Advisory Co Pty Ltd (ABN 37 660  030 419) is a Credit Representative (CR No. 541104 of Connective Credit Services Pty Ltd (Australian Credit Licence 389328 ) 

This article is intended to provide general information only and does not take into account your objectives, financial situation or needs. While every effort has been made to ensure the accuracy of the information, it does not constitute legal, tax or financial advice and should not be relied upon as such. You should consider whether the information is appropriate to your circumstances and seek independent professional advice before making any financial decisions. All lending is subject to lender terms and conditions, fees, charges and eligibility criteria.