What Is Mortgage Prison?
Mortgage prison is the situation where you are meeting every repayment on your home loan but cannot move it to a cheaper lender, because on paper you no longer qualify for the loan you already have. It typically affects people who borrowed close to their maximum when rates were lower, and people whose income, expenses or property value have since moved the wrong way.
Why Can't You Refinance a Loan You Already Repay?
Because a new lender does not test whether you can afford today's repayment. It tests whether you could afford the repayment at a higher rate. Banks regulated by APRA are expected to assess new loans at an interest rate at least 3 percentage points above the actual loan rate. A borrower comfortably paying 6% is assessed as if the rate were 9% or more.
Other common causes:
- Income changes: parental leave, reduced hours, a move to self-employment without two years of financials.
- New debts or limits: car finance, personal loans, buy now pay later, or unused credit card limits, which are assessed as if fully drawn.
- Higher living expenses than when the loan was written.
- A lower valuation, pushing the loan above 80% of the property value (see low valuation on a refinance).
If you think you are stuck, the first move does not need any reassessment at all. Your current lender can drop your rate through a pricing request without looking at your income again. I lodge that first, because it works more often than people expect. Then I look at which lenders have policies built for exactly this situation, and there are more of them than most borrowers realise.
How Do You Get Out of Mortgage Prison?
1. Reprice with your current lender
A rate reduction on the existing loan needs no new application and no serviceability test. It is free and usually resolved in days. See repricing vs refinancing.
2. Look for a reduced-buffer refinance
Some lenders apply a lower assessment buffer to like-for-like refinances, where you are not borrowing more and have a clean repayment history, typically over the last 12 months. Criteria differ by lender and change over time, subject to lender assessment.
3. Consider lenders with different policies
Non-bank lenders are not bound by the same prudential standard and set their own assessment rates and expense treatment. Their pricing can be higher or lower than a bank's, so the comparison has to be done on total cost, not headline rate.
4. Strengthen the application
- Close or reduce unused credit card limits.
- Clear small debts and buy now pay later accounts before applying.
- Consider consolidating higher-rate debts if it genuinely lowers total commitments (see debt consolidation).
- Check whether a longer loan term brings the assessed repayment within limits, understanding that a longer term means more interest overall.
- Make sure all income is counted: overtime, bonuses, rental income and family payments are treated differently by different lenders.
5. Wait, with a plan
If nothing fits today, it may fit after a pay rise, a debt paid out or a few more months of clean repayment history. We note the date and review it then.
Is Mortgage Prison Permanent?
Rarely. Serviceability moves with your income, your debts, interest rates and lender policy, and all four change. The mistake is assuming a decline from one lender applies to every lender. Policies differ widely across 50+ lenders, which is the practical reason to have the scenario checked before concluding you are stuck.
Will a Declined Application Hurt Your Credit File?
Each formal application leaves an enquiry on your credit file, and several in a short period can count against you. This is why the checking should happen before anything is lodged. A broker can assess your scenario against lender policies without a credit enquiry and submit only where the application fits. More on this in does refinancing hurt your credit score.
General information only. It does not take your objectives, financial situation or needs into account. All lending is subject to lender assessment and approval. Fees and figures are typical ranges at 14 November 2026 and can change. Lend & Loan, Australian Credit Licence 511092.
