Home loans become problematic for banks when the borrower cannot afford to pay. When this occurs it simply passes it on to their arrears team for management.
APRA (Australian Prudential Regulation Authority) expects banks to assess new borrowers’ ability to meet their loan repayments at an interest rate that is at least 3% points above the home loan product interest rate.
Despite all the media commentary about mortgage stress, arrears, cliffs, and borrowers getting second and third jobs to make ends meet, the banks have now invented a brilliant new way to lend you even more money by assessing their version of your loan affordability (under responsible lending) at just 1% instead of 3% above the home loan product interest rate.
Mortgage managers are getting into the new fad, by counter offering 0% assessment on selected home loan products.
Do you remember the good old cashback that gave you back an insignificant fraction of the money the banks would make on your home loan if you signed up with them, that became a fad because everyone else got into the act?
It’s a big club and it’s getting bigger and you ain’t in it, unless you are a…