Refinance Assessment Buffer Comparison

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Disclaimer: All information in my articles is general in nature and for information and education purposes only. It is never to be taken as personal financial advice. Always consider the best options for your individual circumstances and consult the necessary financial and legal advisors before making any decisions.

 

Borrowing Capacity

The borrowing capacity you have is a function of many factors but one of the most important is the rate of interest being charged and the assessment buffer. The assessment buffer is an additional interest rate amount added to your actual rate to model the impacts of rising interest rates. At the moment this is set at 3%. This means when rates were 2.5% last year, the assessment rate was only 5.5%, but now that interest rates are 5.5%, the assessment rate is a whopping 8.5%. This has significantly affected the amount clients can borrow and has effectively reduced that amount (all else being equal) by up to 30%. That results in…

Mortgage Prisoners

Unfortunately, a large number of mortgage holders are now not able to refinance when their fixed rate ends or if their variable rate is uncompetitive. They effectively become mortgage prisoners. Worse still, new-to-lender discounts are up to 1.0% higher than for existing clients and therefore existing clients who can’t refinance are at the mercy of the bank. And we all know that’s not a good position to be in.

The Game Changer

The game changer is the reduction in the assessment buffer. One large lender (and more may follow) has changed their policy and is assessing refinance (only) loans at an assessment rate of only 1%. The impact of this is substantial. I have constructed a table below which gives a demonstration.

As you can see from the table, reducing the assessment buffer from 3% to 1% allows for an additional borrowing capacity of approx. 22%. This can be the difference between rolling off a 2.5% fixed rate to a 6.5% (or higher) variable rate OR refinancing to a new lender at 5.5% with a cashback (the lender in question is still offering a cashback) and extending the loan term if that’s needed. 

Make no mistake this is huge. If you or anyone you know is having trouble meeting their repayments or is worried about what’s going to happen when their cheap fixed rate ends – get them to contact me. It could be the most financially rewarding call or email they make this year.

Taras Mencinsky | Runmore Loans

Hi, I’m Taras

I love helping clients with the financial side of making their dreams a reality; whether it’s through purchasing your first property, refinancing for investment or securing a business loan, I am here to help you find the optimal solution.

I negotiate with the banks and other financial institutions on your behalf to provide you the loan that best suits your needs – and support you as your needs change.

M: +61 (0) 414 636 211 | gnenf@ehazberybnaf.pbz.nh | www.runmoreloans.com.au

Taras Mencinsky | Runmore Loans