Case study equity stripping
Ben and Tina lose their home
Ben and Tina bought a home
worth $530,000. Ben was self-employed and when business slowed they
found they could not meet their home loan repayments.
Ben and Tina decided to refinance their loan using a broker who
advertised in their local paper. The broker advised them to switch
to a loan with higher repayments and a higher interest rate than
their existing loan. He advised them of this even though Ben and
Tina had defaulted on their existing loan and clearly did not have
the capacity to pay the new loan. What they really needed was a
loan with repayments that were lower than what they were already
The broker charged them a total of $20,120 in fees to refinance.
They found out later that if they had approached a mainstream
lender such as a bank, they would have paid only $670.
To pay the broker, Ben and Tina had to draw down the equity in
their home. Before they refinanced, they owned 15.1% of the equity
in their home. After refinancing, they only owned 11.4%. They lost
24.3% of the equity they previously held, or almost $19,500.
To make things worse, the high broker fees and further charges
by the lender increased the amount that had to be borrowed, which
in turn increased the repayments.
A year after they refinanced, Ben and Tina were forced to sell
their family home. Not only had they lost significant equity, it
had cost them more than $20,000 along the way. They would have been
better off making the tough decision to sell their home a year
Work out whether you will save money by switching to
Last updated: 18 Apr 2017