May 05, 2023
Westpac will lower the stress test for homeowners looking to refinance in a bid to help borrowers avoid “mortgage prison”.
Nearly 900,000 Australians who secured record low interest rates on a fixed term mortgage during the Covid-19 pandemic will have come off the rate and face significantly higher levels of interest on their new repayments.
Making matters worse, some looking to refinance their loan with a new bank in the hope of a lower interest rate are finding they are trapped where they are, as they cannot pass a financial stress test.
Under the standard test, a bank checks a borrower’s finances to ensure they would still be able to make repayments if interest rates rose by 3 per cent more than the rate they are currently looking to borrow at.
From next week, Westpac will allow some people looking to refinance their mortgage to be tested under a “modified Serviceability Assessment Rate” if they do not pass the standard serviceability test.