Stuck in Mortgage Prison? Here’s What You Need to Know About Changing Serviceability Rules
Can’t refinance due to rising interest rates? You’re not alone.
Thousands of Australian households are feeling the pinch—keen to refinance, but held back by lender serviceability criteria. If that’s you, don’t give up yet. With some major banks lowering their serviceability buffers, the door may be reopening.
Let’s break down what’s changed, what “mortgage prison” really means, and how you might finally refinance into a better deal.
Australians are refinancing in record numbers
According to ABS data, a record $21.3 billion in refinancing occurred in March 2023—up 14.2% from the previous year. Clearly, borrowers are seeking relief as interest rates rise.
But not everyone can join the refinancing party. Many are stuck in what’s become known as mortgage prison.
What is mortgage prison?
If you’re unable to refinance because of higher rates and tighter lender assessments, welcome to mortgage prison. The core issue lies with the 3% serviceability buffer required by the Australian Prudential Regulation Authority (APRA).
This buffer means you need to prove you can afford your new loan at 3% above the rate you’re applying for—a tough ask when the RBA’s cash rate has soared from 0.10% to 4.10% in just over a year.
The result? Even if refinancing would save you money, many borrowers no longer qualify on paper.
There’s good news: some lenders are lowering their serviceability buffers
Recognising the pressure on borrowers, some lenders are starting to ease their serviceability rules—making refinancing possible again for certain customers.
Who’s leading the charge?
- Commonwealth Bank (CBA) is now allowing a 1% buffer for select refinancing customers
- Westpac and its subsidiaries (St George, Bank of Melbourne, BankSA) are offering similar concessions
- Other non-major lenders are also reviewing their criteria
These policies tap into APRA’s exceptions framework, which permits flexibility for well-qualified applicants—so long as it’s done responsibly.
What are the eligibility criteria?
They vary by lender, but here’s a general idea:
For CBA:
- Loan-to-value ratio (LVR) must be at or below 80%
- Perfect repayment history for at least 12 months
- Must be refinancing to a principal and interest loan with equal or lower repayments
- Must meet the 1% buffer test
For Westpac:
- Minimum credit score of 650
- Proven repayment record over the past 12 months
- New loan must have lower repayments than the current one
- Must also pass the 1% buffer assessment
You can find more detail via APRA’s lending guidance.
What’s the catch?
To qualify, you’ll typically need to extend your loan term back out to 30 years. That may drop your monthly repayments—but increase long-term interest costs.
Example: If you took out a $500,000 home loan three years ago and refinance under CBA’s revised policy, RateCity estimates your repayments could fall by $235/month. But over the full term, you could pay $32,000+ extra in interest.
So it’s important to weigh short-term relief against long-term impact.
Is refinancing the right move for you?
At CBM Mortgages, we help borrowers:
- Assess if they meet the new relaxed serviceability rules
- Explore lender options with more flexible refinancing policies
- Crunch the numbers on potential interest savings vs costs
- Escape “mortgage prison” without jeopardising their future financial health
Want to estimate your new repayments? Try our home loan calculators or book a chat with our team.
Take control of your home loan today
Being stuck in a loan that no longer suits you doesn’t have to be permanent. With these recent serviceability changes, there may be a window of opportunity to refinance and reduce your financial stress.
Let CBM Mortgages guide you through your options. We’ll give you straight answers, crunch the numbers, and help you make a confident move.
Read our First Home Buyers blog post here
Disclaimer: This article provides general information only and does not constitute financial or legal advice. Always seek professional guidance tailored to your individual situation.
Written by Craig McDonald 16/06/2025
