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New escape route from ‘mortgage prison’ could provide relief to borrowers


Despite the Reserve Bank’s decision to keep the cash rate on hold, 1.6 million Australian households remain at risk of mortgage stress. However, Compare the Market Economic Director David Koch suggests that a new escape route from ‘mortgage prison’ could soon be available to borrowers.

Many borrowers are currently unable to pass serviceability tests, as banks typically stress test borrowers’ finances to ensure they can afford mortgage repayments if rates were to climb 3%. Since May 2022, the cash rate has surged by 4.25%, leaving many people in mortgage stress and unable to refinance.

“If borrowers can hold on that bit longer, an anticipated 0.25% rate cut within the next 6 months could provide them some relief or offer them an escape route from mortgage prison,” Koch said.

According to a Compare the Market analysis, a person with an owner-occupier $750,000 loan could save $121 a month if they were to go from a rate of 6.28% to 6.03%.

Koch suggests several options for people struggling with repayments, including negotiating a lower rate with their lender, asking for financial hardship assistance, and accessing free financial debt counselling through the National Debt Helpline.

“Just one-in-three Aussie mortgage holders have tried to negotiate a lower rate this year, according to Compare the Market research,” Koch said. “Amazingly, 70% of those that called their lender said they were successful in securing a discount. It shows a simple phone call could end up saving you thousands.”

Koch also emphasizes the importance of contacting lenders if you’re struggling to meet mortgage repayments, as all lenders have hardship assistance options that they must consider if requested. These options might include switching to interest-only repayments, extending the loan term, fee relief, or rate concessions.


For those feeling overwhelmed by debt, Koch recommends contacting a financial counsellor as early as possible through the free National Debt Helpline, which offers advice to people struggling with bills, fines, and repayments.

Mortgage sizeIf a 0.25% rate cut were to occur
Minimum monthly repayments on variable P&I rate of 6.03%Minimum monthly repayments on variable P&I rate of 6.28%Difference in monthly minimum repayments
Monthly repayments do not include any reduction in the mortgage balance over time. These calculations assume: An owner-occupied variable interest rate of 6.03% compared to 6.28% p.a; principal and interest (P&I) repayments; the loan term is 30 years; and there are no monthly fees.

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