Westpac has announced a change to its stress test policy for homeowners looking to refinance their mortgage. The new policy will lower the stress test for borrowers, in a bid to help them avoid mortgage prison. This move is in response to the significant number of Australians who have recently come off the record low interest rates they secured during the Covid-19 pandemic and now face significantly higher levels of interest on their new repayments.
The new policy from Westpac will allow borrowers to refinance to a lower interest rate even if they don’t meet the current stress test threshold. This is a welcome move for the nearly 900,000 Australians who are likely to be affected by the end of the record low interest rate period. Under the new policy, borrowers will be able to refinance to a lower rate if they can show they can make their repayments at the lower rate.
Some borrowers who are looking to refinance their loan with a new bank in the hope of a lower interest rate have found themselves unable to do so, as they cannot pass the standard financial stress test.
This test requires a bank to check a borrower’s finances in order to guarantee that they could continue to make repayments if interest rates were to rise by 3 per cent more than the rate they were looking to borrow at, thus making matters worse.
Starting next week, Westpac will offer an alternate Serviceability Assessment Rate for certain individuals attempting to refinance their mortgage if they are unable to pass the regular test.
