Mortgage Review – know your options and avoid being a Trapped Borrower.
With the lowest interest rates in history over the last few years, Homeowners have been riding the good times. But with fluctuations in all markets being a constant we know the peaks are never expected to remain forever. But the speed at which interest rates and living expenses have increased over the last 12 months has left many shaking their heads and sitting on their hands – and now face becoming a trapped borrower!
What is a trapped borrower?
When first gaining a home loan – the rate is calculated based on 2 factors – the rate the loan is paid back on being the borrower rate and the “benchmark rate/assessment rate” that lenders/ banks service the home loan on. This is a little bit of a buffer that is added to the borrower rate for servicing calculations. A borrower must service the repayment at a higher rate to be able to be approved for that loan amount. For banks, this rate is normally between 2.5 – 3% higher than the borrower variable rate.
However, with the current increases in the interest rates, the borrower rate is now at the same level as the assessment rate was 2 years ago. Meaning, that in many cases borrowers would now need to service a new loan at over 8%.
A Trapped Borrower means that based on the lender’s servicing calculations you cannot service a new loan for the same amount at a cheaper rate. This makes it hard to consolidate debts to reduce monthly payments or refinance your home loan from 6.29 % to 5.39%. So even though a refinance would improve your cash flow you could be trapped where you are due to the servicing guidelines.
What is Mortgage Review
A full review of your home loan is the first step and the best way to ensure you can save as much as possible and get yourself into the best possible cash flow position.
Cashflow: Having a mortgage review is not just about getting a lower interest rate. It is also about being offered various solutions to help increase the cash flow into the household. This could include;
- This could be extending the term back over 25 or 30 years
- Consolidating some debts so you have a lower overall payment
- if you have an investment loan on P & I consider putting it back to Interest Only
All these options may improve your cash flow a lot each month which can help meet the rising costs of the mortgage and living. It is better to be prepared and save money before you need it so you can get ahead. You can always make extra repayments with the amount our team can save you each month!
Rate Review: Additionally, A Mortgage review will also look at the current rate you are on.
Do not just accept any rate from your current lender without comparing first across over 25+ lenders. Most lenders are not offering the same rates to current customers that new customers are offered. Our team are often requesting rate reductions for our clients and in many cases, they will get a better rate without refinancing.
If you are currently on a great fixed rate that is due to expire in 2023, you need to plan now.
Refinancing is an option with over 25 different lenders. However, WhiteStar Finance will only assist with a refinance if there is a good benefit. We need to make sure that the borrowers are being put into a better position or achieving their objectives with the refinance.
Do not Delay
In 2008 and 2010 the WhiteStar team faced the same issues with fast rising interest rates. It was a stressful time for clients and staff. Savings were there to be made, but there were always the people who did not act until rates became too high and the financial stress had started. This resulted in many having to stay with their current lender until credit criteria change or rates reduced.
It is always better to do something about your finances BEFORE the financial stress is showing with late or missed payments, otherwise the solutions may still be ok, but they will not be as good
It costs you nothing to know your options. Do not become a trapped borrower just because you chose not to review your mortgage in time.
Find out today what WhiteStar can do to help you. Complete our form and request a Mortgage Review.