Ask the Experts: Could a change in serviceability buffers help you refinance?

Scott Palazzi from Loan Market explains how reducing a serviceability buffer could help you refinance your home loan.

As interest rates increased in line with cash rate hikes over the last year, it has become harder for some mortgage holders to refinance their home loan.

To overcome this, some lenders are reducing what is called a ‘serviceability buffer’, making it easier for some borrowers to meet the criteria to refinance.

What is a serviceability buffer?

Lenders are required to use a serviceability buffer when determining how much a person can borrow to make sure they can continue to meet repayments even if interest rates increase or their circumstances change.

The Australian Prudential Regulation Authority (APRA) recommends a buffer of 3%, meaning lenders calculate whether a borrower could meet repayments if the interest rate on the loan was 3% higher at the time the loan is granted.

How has the buffer been impacting refinancers?

As interest rates have increased, some people have found themselves in what is called “mortgage prison” where their income has not kept pace with higher repayments.

In some cases, lenders applying a 3% serviceability buffer on top of the current increased interest rate could disqualify a number of borrowers from refinancing their loan, essentially trapping them with their existing loan and rate.

What’s changed?

Some lenders have announced they will reduce their serviceability buffer to 1% for eligible borrowers with good repayment history and equity in their properties.

This means some homeowners who previously were ineligible may now be able to refinance to a lower interest rate!

Can I refinance my home loan?

There is a good chance I will be able to find a lender that will refinance your loan, or work with you toward a solution. Simply reach out and let me do the legwork for you.

0413 747 283

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