'Nasty shock' ahead for refinancers

by Adam Smith17 Nov 2011

Homeowners looking to refinance could be shocked to find their mortgages underwater, it has been claimed.

Comparison site Rate City has warned that borrowers in hard-hit property markets could face a "nasty shock" when looking to refinance. The company's chief executive, Damian Smith, said somje high LVR borrowers could find themselves in negative equity.

"Some homeowners and investors who borrowed 95% or more of a property's value - particularly those in some of the hardest hit suburbs of Adelaide, South East Queensland and Perth, may now have mortgages that outweigh their home's value," Smith said.

Smith said high LVR borrowers in depressed markets may find themselves unable to refinance.

"The good news is that the rate cut earlier this month will likely be passed on by most lenders, wiping around $50 per month off the average-sized home loan repayment. By keeping repayments at the higher level - rather than spending the extra money - borrowers will reduce their debt sooner and get back into a better mortgage situation," he said.

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