Mortgage stress: your alternatives

Are tougher economic times squeezing your household budget? Know your options and rights if you're struggling to make mortgage repayments.
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  • Updated:3 Feb 2009

02.Dodgy refinancing brokers

If you're struggling to make your mortgage payments, you might be tempted by broker and lender advertisements that promise easy solutions to your debt problems. Such offers should be taken with a large quantity of salt.

In the past we've seen 'debt reduction', 'mortgage minimisation' and other schemes promising to unlock mysteries and provide new ways to clear your home loan sooner. Some suggested you could repay your loan quicker without making extra payments or even benefit by paying thousands of dollars for a plan that explains how you can save, you guessed it, thousands of dollars.

However, there are significant traps with these arrangements, which are targeted at people who are vulnerable and in debt.

A report by the Australian Securities and Investments Commission (ASIC) looked at case studies of people who had refinanced (or switched their loan to another lender) as a response to mortgage stress. ASIC found that the brokers had essentially ripped these consumers off and left them in a much worse position than before.

Two brokers who marketed themselves as 'refinancing experts' were analysed in detail by ASIC. The investigation found that:

  • The brokers charged fees to borrowers of more than 20% of the remaining equity in their home.
  • These fees were up to 22 times the industry standard.
  • The highest fee was $24,320 and the smallest was over $20,000.

ASIC also analysed the financial position of three borrowers who refinanced and found that:

  • The refinance cost them, on average, 27% of the equity they’d built up in their home.
  • All three brokers arranged loans with higher repayments.
  • Within twelve months of refinancing, all three borrowers had lost their home or had defaulted on their repayments, meaning they had to sell their home.

For more information, see ASIC's report on refinancing in response to financial stress.

Also, there’s information about inappropriate refinancing available from the Consumer Credit Legal Centre NSW.


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