And then there were 3: NAB follows Westpac and CBA by slashing stress test for mortgage prisoners

NAB has announced it will lower the stress test on select refinance applications for borrowers who do not pass the bank’s standard serviceability test.

Banks typically stress test a borrower’s finances to make sure they can still afford the mortgage repayments if rates rose by 3 percentage points more than the rate they are applying for, even if the application is a refinance.

Because of this, some borrowers have found they can’t refinance to a lower-cost lender because they don’t pass the serviceability test at higher rates.

From Friday 21 July, select refinancers who do not pass NAB’s standard serviceability test can be re-assessed 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 be refinancing to a principal and interest loan of a similar or lower value. (NAB will allow refinancers to take out an extra 1 per cent of the loan size to cover refinancing costs.)

Importantly, NAB will let customers retain their current loan term should they wish to, but will also allow them to extend it “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.

RateCity.com.au understands that FirstMac and its subsidiary, Loans.com.au, has also reduced the stress test for select refinancers stuck in mortgage prison.

RateCity.com.au research director, Sally Tindall, said: “NAB has followed in Westpac and CBA’s footsteps by unlocking the door for select mortgage prisoners.”

“Helping borrowers in financial stress on to lower rates can often be the difference between them keeping on top of their repayments and defaulting on their loan,” she said.

“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?

“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.

“The more lenders that are willing to assess refinancers outside of their standard stress tests, the more options these financially stressed borrowers will have,” she said.

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