As interest rates continue to rise, more and more Australians are finding themselves facing a very uncomfortable truth. They are locked in with their existing lender, unable to refinance or negotiate a better interest rate on their existing home loan or investment property loan.
Lenders are well aware of the situation thousands of clients are facing and as such are coming up with great alternatives that can help you escape the mortgage prison and ease off the pressure! What are they and what can you do to have access to them?
Understand your situation
In order to understand what you can do to improve your situation and escape the mortgage prison, you must first understand what a mortgage prisoner is and the reasons why you have become a mortgage prisoner in the first place.
A mortgage prisoner refers to anyone who has got an existing home loan but is unable to negotiate a better rate with their existing lender or break free from their existing mortgage to access a better rate offered by a different lender.
Borrowers become mortgage prisoners essentially because they lack the power to negotiate with their lender. In most cases and in the context of rising interest rates, this occurs for a couple of reasons:
- Interest rate rises have negatively impacted your borrowing capacity and/or
- You have lower serviceability
Let’s discuss these in greater depth…
a. Interest rate rises have negatively impacted your borrowing capacity
So, what is your borrowing capacity and why is it important?
In short, your borrowing capacity influences the amount of funds a lender is likely to approve your mortgage for.
Higher interest rates decrease this amount, as lenders will now assess your ability to meet your monthly repayments covering higher interest costs (plus an additional buffer) on the money you are borrowing.
If the money you earned once allowed you to borrow $600,000 at a 2% interest rate, you may now only be able to borrow $500,000 if interest rates were to increase to 5%
If your lender is aware of your situation, they may be unwilling to negotiate and lower your interest rate as they know you will not be able to secure a better rate for the same amount they were initially willing to lend you elsewhere, as such, you are trapped in the mortgage prison and locked in with high repayments!
b. You have lower serviceability
Similarly, serviceability or your ability to make repayments on a specific loan amount might have been harmed by rate rises.
As the amount you are expected to pay monthly increases and your income refuses to do so at the same pace, you may find your financial circumstances are not optimal to meet those obligations anymore.
Low serviceability locks you in as other lenders’ faith in your ability to meet repayments decrease. Once again you are stuck with a lender that is unwilling to negotiate, given their awareness of how hard it will be for you to find another lender willing to say yes.
What can you do to escape the mortgage prison?
The great news is, you are not alone!
Thousands of Australians have been facing this exact situation and lenders are very aware of it. The lending market is becoming more competitive as lenders look for avenues to help mortgage prisoners escape, so they can leave their existing lender and become their new client instead.
As your trusted mortgage brokers, we are aware of these rapid changes in the market and are here to help you navigate them with ease, enabling you to take your power back to negotiate with your lender or find a better suited alternative instead.
How can we help?
Having an award-winning team that is working to protect your best interests (not the banks!) is your safest bet.
Your dedicated Rise High broker can help by providing you with detailed information about policy changes lenders are currently adopting, assessing all your options and comparing how each can impact your finances in the short and long-term.
With market knowledge as our best tool, we can also negotiate with your existing lender on your behalf ensuring you have the most competitive rate they are willing to offer. Alternatively, we can conduct a well-rounded assessment of alternatives available in the market that might be better suited to help you achieve your financial dreams and goals.
As lenders become more flexible with the way they assess your borrowing capacity to gain new business and launch offers that might put you ahead financially, our team will be here to guide you with expert advice and keep you informed along the way! The best part about it? Our mortgage broking services are fee-free! So you have nothing to lose.
If you are looking to escape the mortgage prison, looking to get ahead financially or feeling curious to find better alternatives for your circumstances, reach out today! We are always looking forward to empowering and supporting you!