What is a mortgage prisoner, you might ask? Simply put, they’re people who are trapped by crippling mortgages they can no longer renegotiate due to recent rate increases that have made them fail lenders’ standards. This means they’re unable to refinance and get a better deal from another lender.

The problem stems from home loans written between 2019 and 2021, which were assessed on an applicant’s ability to make repayments at 2.5 percentage points above the lending rate, with the buffer increasing to 3 percentage points. However, mortgage rates have shot up by about 3.5 percentage points since May last year, in line with the rate-hiking cycle of the Reserve Bank.

As a result, many pandemic-era homebuyers wouldn’t meet today’s lending standards, preventing them from renegotiating their mortgages and potentially saving thousands of dollars.

Research from financial comparisons site Canstar shows that almost one-quarter of owner-occupiers making principal and interest repayments are on rates in excess of 6.5%, compared to mortgage rates in the market as low as 4.7%. This represents a significant difference in monthly repayments, with a homeowner with a $500,000 mortgage paying an additional $570 a month on a rate of 6.5% compared to the lowest rates in the market.

Some borrowers are paying even more than 8% for high-rate loans taken out many years ago, which represents a whopping $1150 in additional repayments a month for a $500,000 loan.

So, what can you do if you’re struggling to pay your mortgage? Well, for borrowers still in sound enough financial shape to refinance, an interest rate above 6.5% should be blaring alarm bells and sending them off to a bank for a better deal. However, for many others, renegotiating or requesting a delay may be the best option.

It’s important to stay informed and seek professional advice if you’re struggling with your mortgage repayments. As a real estate agent, I’m here to help and provide guidance in navigating the current market conditions. Don’t hesitate to reach out to me for assistance.

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