An appeal has been made to the Australian Prudential Regulation Authority (APRA) to relax the rules surrounding refinancing, as an estimated $141 billion worth of fixed-rate home loans are expiring in 2023Expressing concerns over the impending expiration of fixed-rate home loans, mortgage experts are warning that many Australian homeowners may find themselves trapped in a ‘mortgage prison’. 

Advocates are urging APRA to ease regulations for borrowers seeking dollar-for-dollar refinancing by eliminating the 2.5-3% buffer that is added to a loan assessment when calculating a borrower’s lending capacity. Removing this buffer would enable borrowers to refinance their home loan to a lender with lower interest rates, while it is currently holding both those with a borrowing capacity less than their current home loan balance.

While home loan buffers made sense during the past few years of record-low interest rates, serving as a safety net for lenders to ensure borrowers could repay their loans, they have now become an unfair trap for those seeking to refinance the same amount with a new lender. These borrowers end up paying hundreds or even thousands more on the same loan with higher interest rates.

APRA should establish separate recommendations to regulate existing borrowers, allowing those seeking refinancing to demonstrate their ability to meet repayments in the same manner as applying for a new loan, based on their current income. 

There are several solutions for borrowers transitioning from fixed-rate loans who may face a doubling of their repayment amounts. These include debt consolidation and exploring options beyond the four major banks. Additionally, property owners who anticipate a decrease in their property’s value should consider getting an updated valuation. Banks assess the value of your home based on recent comparable sales and this could make a difference in having sufficient equity for refinancing. 

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