When you apply to refinance, lenders don't test whether you can afford the rate you're actually going to pay. They test whether you could afford repayments at 3 percentage points higher. So if you're refinancing to a rate of 6.5%, the bank assesses you at 9.5%.
The problem is that many borrowers took out their loans when rates were 2-3%. Rates then climbed sharply. Their income hasn't necessarily grown to match, and now the serviceability test at current rates is something they can't pass - even though they've been making every repayment on time, every month, for years.
The buffer exists for a reason: lenders want to know you have headroom. But for a large group of borrowers, it has created a trap where responsible repayment history counts for nothing and moving to a lower rate elsewhere is mathematically blocked.
Mortgage prisoners aren't a single type of borrower. Several groups tend to be hit harder than others:
Being a mortgage prisoner is not a permanent situation. There are a few genuine paths worth exploring:
Streamlined refinancing. Some lenders - not all - will assess a refinance application based primarily on repayment history rather than a full serviceability calculation. If you have been meeting your repayments without fail, this can be a legitimate route to a lower rate. The catch is knowing which lenders offer this and whether your situation qualifies.
Negotiate with your current lender. Lenders want to keep good customers. A retention rate - a rate reduction offered to stop you leaving - is often available to borrowers who ask, particularly if they have a strong repayment record. You don't need to refinance to get a better rate; sometimes a direct conversation with your lender achieves a meaningful reduction.
Pay down debt to improve serviceability. Reducing other debts - credit cards, personal loans, buy-now-pay-later facilities - can meaningfully improve the income-to-outgoings ratio that determines whether you pass a serviceability test. Even small reductions can shift the numbers enough to open up options.
Talk to a broker who knows the lender landscape. Not every lender applies the buffer the same way. Some have more flexible policies for certain borrower types. A broker with access to a wide panel can identify where a fit exists that you would not find by going direct to one or two banks.
A broker's job in this situation is to do the work of searching across many lenders, not just the ones you might walk into. That includes lenders with streamlined refinancing pathways, lenders who weight repayment history more heavily, and lenders whose policies suit your specific borrower type.
The process starts with a proper look at your situation - income, debts, loan balance, repayment record - and an honest assessment of what is available. If the answer is that no lender is a fit right now, a good broker will tell you that too, and explain what would need to change for options to open up.
There is no cost to the borrower for this. Brokers are paid by lenders when a loan settles. A conversation costs nothing.
Jason and Steve are Adelaide mortgage brokers who give honest advice at no cost to you. We'll tell you what options genuinely exist - no obligation.
The information on this page is general in nature and does not constitute financial advice. Given Finance Pty Ltd (t/a Lendology) ACN 624 144 501 is authorised under LMG Broker Services Pty Ltd ACL 517192.