Westpac’s major move for homeowners: ‘Fantastic news’
Westpac is making a major change to its lending rules for home loan refinancers.
Westpac is slashing its stress test for select refinancers, making it easier for borrowers to get out of mortgage prisons.
Banks typically stress test a borrower’s finances to make sure they can afford mortgage repayments if rates rose by 3 per cent above the actual rate they are applying for.
For instance, if you had a $500,000 loan with a 5 per cent interest rate, you would be assessed on whether you could afford repayments at 8 per cent.
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Some borrowers are currently unable to refinance to a cheaper lender because they don’t pass this test with the higher rates - leaving them stuck in a mortgage prison.
From Monday, Westpac and subsidiaries St.George, Bank of Melbourne and BankSA will apply a “modified Serviceability Assessment rate” for select refinancers who don’t pass the standard test.
Borrowers must have a good track record of paying down their debts in the last 12 months, a credit score of more than 650, among other criteria. They also need to be refinancing to a loan with lower monthly repayments.
RateCity research director Sally Tindall said Westpac was “pulling down the barricade” for borrowers stuck in mortgage prison.
“This decision from Westpac is potentially fantastic news for customers who are stuck with their current lender with limited places to turn, provided they can clear the bank’s checks and balances,” Tindall said.
Stress test should be lowered
RateCity is calling on APRA to consider officially lowering the 3 per cent serviceability buffer for refinancers.
“Many Australians who borrowed at capacity when rates were at record lows and the buffer was at 2.5 percentage points are now lugging around giant loans compared to their incomes,” Tindall said.
“It seems ridiculous to keep these borrowers locked up in mortgage prison when a decent rate cut could be enough to help them stay afloat.”
RateCity found the average single person who borrowed at capacity two years ago with one of the big four banks could save almost $14,000 by refinancing to Westpac’s lowest variable rate.
The borrower could potentially see their rate drop by 0.85 per cent and their monthly repayments by $355.
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