Let's talk about 'mortgage prisons'.Feb 16, 2023
In this week's Video I talk about the media's new clickbait phrase 'mortgage prison'. Firstly, I call BS on this term and explain what it means and then share my top tips for what you CAN do if you are in that situation.
The main takeaway? You absolutely have choice - and in this video I share what some of those are..
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Hey, welcome to Mel's Money Musings.
Today I wanna talk about the term 'mortgage prison'. Now, I am almost tempted to give this term my clickbait phrase of 2023, despite the fact that we are barely a month in, and that's because it is a phrase designed for maximum impact, maximum stress, maximum fear, and the most important one, maximum clicks.
And the reason that I call that last one is because it's a phrase designed for a click bait headline that you'll click on so that media can sell ads. So I want to be really clear that that is why it is a phrase designed to capture your fear. And here I wanna do two things. I wanna call BS to it. I'm gonna explain what it means. I'm gonna call BS to it, and I'm gonna explain to you what you can do if you find yourself in the situation that the phrase has captured you in. Or let's be honest, any type of situation that maybe is a bit wobbly when it comes to your mortgage.
So what does the term 'mortgage prison' mean? It means that you are in a situation where you are unable to refinance your loan. That's it, plain and simple. So that might mean either your wage has dropped, so therefore, or your wage, your income coming in has changed. Your serviceability has changed, so you might have applied for a loan on a really low interest rate. You've gone to refinance now and you couldn't service a higher mortgage according to the bank. So therefore you kind of stuck. Or three, your property values have dropped so that you have less than 20% equity. So less than 20% between the value of your property and the mortgage. So it becomes more difficult to refinance. That is what it means by 'mortgage prison'.
But let's be clear, it's a point of privilege to be in a mortgage prison. You've chosen to buy that property, you've chosen to have that mortgage. There are a lot of people that were, that are desperate to get into their own home. So let's just call BS for one, the fact that is a position of privilege, but also number two, it's choice. You have more choice than you realise. You have choice to be in that prison. You have choice to get out of that prison. If you are in prison, it's cause you've done something wrong usually, and you can't get out, can't argue your way out. You can't sell something and get out. In the so-called prison you are in for this mortgage prison, you can get out of it. So that's why it is total and utter BS. You might feel like you're a little bit trapped, but you are not.
So let's talk options.
So option number one is simply stay where you are and continue as normal. Would you like to maybe refinance your loan? Sure, but is it problematic if you continue to pay your mortgage? No. Therefore, it's, it's simply as you might be paying a slightly higher interest rate, but you are able to still stay in your home and pay off your loan. Simple.
Number two is ask for a better rate. So I did this recently and I show everyone how to do this inside my course, the My Financial Adulting Plan. And there's a link to your wait list at the bottom of where you found this, this musing. But essentially I sent an email to my bank manager, asked for a better rate. She came back a couple of days later and dropped it by 0.52%. She didn't check to see what my property was worth. She didn't ask to see what my current earnings were. She just adjusted the rate. You've got a mortgage broker or you currently have a mortgage, this is something anyone can do. And as I said inside the My Financial Adulting Plan, we give you scripts, we give you support, and we help you, so that the average rate reduction is 0.5% annually. Yeah, let that sink in.
The third thing that you can do is you can, um, you could refinance and pay mortgage insurance. So it is a misnomer if you have gone into that less than 20% territory, you might think, Ugh, I'm in a prison because if I move I'll have to pay mortgage insurance. Sometimes that's okay. If you are intending to move to a much better rate and stay there, then that may actually be appropriate. But no matter what, it means you still have choice.
And fourth, obviously what you could do is just say you had $20,000 and this is where you'd talk to your bank and talk to your broker and find out where the gap was. Just say there was $20,000 that you needed to find that your property prices dropped. So I would give myself 12 months and build up that $20,000 in my mortgage, by making extra payments. If you wanna know how to find more dollars, I've got a free webinar ‘50 ways to find 10k in 12 months’. So get that and start shooting it. Might it mean that you have to get a second job for 12 months? Sure, but that means you're not in prison, right? Even though I think prison is BS.
So again, you might not like some of these choices, but you have choice.
The other thing you might do if it's an income problem is you've got then time to either work in your business to increase your profitability or to go to your, um, employment and say, Hey, how could I get a pay rise? And then work for the next 12 months to increase your KPIs, put a case together so that you could get a pay rise or move jobs to a better dollar rate.
So, and obviously the final one is to stay, which I think I said at the beginning, but what's really important to understand is if you are in prison, you have no choice. This mortgage, so-called mortgage prison, it's BS because even if you feel like you don't have all the choices you would like, as I've just proven, you have choice.
As I said, if you know that you need more help, if you know that interest rates are only gonna continue to rise this year, if you need my head and my knowledge and expertise on your figures, not looking at your figures and giving you a hand, but actually learning from me, getting that increased financial literacy from me, then make sure you jump on the wait list for the My Financial Adulting Plan. Doors open in May.