Low Doc Home Loan


Information, money saving tips and commentary on Low Doc Home Loans in Australia
Low Doc Home Loan What is a Low Doc Home Loan? Low Doc (short for Low Document) home loans are a recent innovation in Australia and are targeted at contractors and the self-employed, who often lack current tax and financial records. Traditionally it has been more difficult for the self employed to obtain loans because banks had a preference for borrowers on guaranteed (ie PAYE) incomes. The Low Doc Home Loan helps borrowers with irregular cash flow or who may not have current financial statements, providing they have sufficient equity in an existing property or other assets. Low Doc loans can be variable or fixed rate loans, or lines of credit, and may include an offset facility. Low Document loans attract a higher rate of interest than other types of loans because lenders perceive the risk involved to be greater. Because the employment situation in Australia is changing, bank and non-bank lenders have had to become more flexible in their approach to lending and so Low Doc loans are becoming more common.
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Low Doc Loans

Features of Low Doc Loans

The Low Doc loan is usually just a standard fixed or variable rate loan, but with different credit criteria i.e. low documentation.

Since full documentation is not required the risk to the lender is higher and this is reflected in the interest rate and maximum loan-to-valuation ratio (LVR) of 65 - 80%. Interest rates are often 0.5% to 1% higher than standard loans depending on risk but competition is bringing rates down and the rate is often reduced once you have established a good track record of repayments. Lenders Mortgage Insurance is not normally required on loans under 80% LVR.

Other useful features can include offset accounts, redraw facility, direct salary crediting, portability and repayment options depending on the lender and type of loan.

Benefits of Low Doc Loans

Specifically designed for self-employed and contactors with good credit records.
Low documentation requirement (This does not mean no documentation!)
Feature rich depending on type of loan selected

Tips and strategies

Shop around because interest rates and LVR can vary significantly between lenders
Avoid loans with monthly account fees
Making weekly or fortnightly repayments pays your loan off faster than monthly payments because you are making 1 or 2 extra repayments per year
When interest rates drop retain current repayment levels
Have your personal income paid into your loan account to reduce interest and use the interest free period on a credit card for purchases before paying the credit card bill from the loan account
Put lump sum payments like tax refunds into your loan account. If required later, use the redraw facility.

Example Rates and Fees

Variable Rate Home Loan NO FEES (June 2010):

Monthly fee NIL
Annual fee NIL
Redraw fee NIL
Extra Payment fee NIL
Fixing fee NIL

Low Rate 6.97% discount std. variable
CCR 7.08%*
*Based on $250,000 Loan over 25 years.

You can apply over the Internet and ask echoice for a free no-obligation quote on a Low Doc Loan.

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