Are you feeling trapped in a seemingly never-ending cycle of high mortgage payments? You might be in what we call “mortgage prison.” In this article, we’ll shed light on what mortgage prison is and offer solutions to help you break free and regain control of your finances.

Understanding mortgage prison

Mortgage prison is a term used to describe a situation where homeowners find themselves locked into their current mortgage, unable to refinance or take advantage of more favourable lending terms. The primary culprit behind this predicament is the buffer rate applied by banks during the mortgage assessment process. In the past, especially during COVID-19, when interest rates were at historic lows, banks used a buffer rate of approximately 5% to assess your ability to make mortgage repayments. However, today’s buffer rates have surged to 9%, making it too challenging for borrowers to secure loans similar to what they were previously approved for.

What this means for you

Imagine the bank initially approved you for a $1,000,000 mortgage when the buffer rate was 5%. Now, with the buffer rate at 9%, they would only lend you approximately $700,000. This can be a frustrating and limiting situation, especially if you’re seeking to refinance your mortgage for a better interest rate with another lender. You’re essentially trapped with your current lender and its higher interest rates.

How to escape mortgage prison

1. Roll a double or use your ‘Get out of jail free’ card

2. Speak to a mortgage professional

If you find yourself stuck with your current lender and desire to take advantage of the competitive mortgage market, it’s crucial to consult mortgage professionals who can guide you through the refinancing process. They can help you identify banks and major lenders that are willing to work with you to reduce your repayments.

3. Find a lender that has a reduced buffer rate.

Some lenders have recognised the plight of borrowers trapped in mortgage prison. They offer a practical solution by reducing their buffer rates to just 1% above the actual interest rate. This adjustment allows borrowers to secure loans that are closer to what they were originally approved for, enabling them to refinance to lower interest rates and reduce their monthly repayments.

Being in mortgage prison can be a daunting experience, but it’s not a life sentence. By staying informed about the changing mortgage landscape and seeking assistance from knowledgeable professionals, you can regain control of your financial future. Don’t let high-interest rates keep you locked in; explore your options and take steps towards financial freedom today.