NAB has joined CBA and Westpac in lowering the stress test on selected refinance applications for borrowers who do not pass the bank’s standard serviceability test.
Normally, banks stress test a borrower’s finances to ensure they can still pay their mortgage if rates were to rise three per cent above the loan they’re applying for.
For many borrowers, this has meant they can’t refinance to a lower-cost lender as they won’t pass the serviceability test at higher interest rates.
But from July 21, some refinancers who don’t pass NAB’s standard serviceability test can be reassessed on a case-by-case basis, with, among other measures, a lower serviceability buffer to help them refinance to a lower rate.
Borrowers will need a good track record of paying their loan on time, at least 20 per cent equity in the home and refinance to a principal and interest loan of a similar or lower value.
“NAB has followed in Westpac and CBA’s footsteps by unlocking the door for select mortgage prisoners,” RateCity.com.au Research Director Sally Tindall said.
“Helping borrowers in financial stress to lower rates can often be the difference between them keeping on top of their repayments and defaulting on their loan.
“Why should people who are saddled with giant debts as a result of borrowing when the buffer and interest rates were a lot lower, be prevented from switching to a lower cost lender?”
NAB will let refinancers take out an extra one per cent to cover refinancing costs, as well as keep their current loan term or allow them to extend the loan “where appropriate”.
This is different to CBA which requires all refinance customers who are applying under the reduced stress test to extend out their loan term to 30 years.
An extension of a person’s loan term has the capacity to cost them thousands in extra interest charges in the long-term.
“With three of the big four banks now offering a reduced stress test for select refinancers, it is likely to be a matter of time before ANZ and other smaller lenders follow suit,” Ms Tindall said.
“The more lenders that are willing to assess refinancers outside of their standard stress tests, the more options these financially stressed borrowers will have.”
