Popular with self-employed people, these loans require less documentation or proof of income than most, but often carry higher interest rates or require a larger deposit because of the perceived higher lender risk.
In most cases you will be financially better off getting together full documentation for another type of loan. But if this isn’t possible, a low doc loan may be a good option to secure the funds you need.
Repayment Options
Weekly or fortnightly repayments
Instead of a regular monthly repayment, you pay off your home loan weekly or fortnightly.
This can suit people who are paid on a weekly or fortnightly basis, and will save you money because you end up making more payments in a year, cutting the life of the loan.
Extra Repayments
If you pay more than the required regular repayment, the extra amount is deducted from the principal.
This not only reduces the amount you owe but lowers the amount of interest you repay.
Making extra repayments regularly, even small ones, is the best way to pay off your home loan quicker and save on interest charges.
Principal & Interest
Repayments are calculated on the total term of the loan and the fixed interest rate that you select.
Interest only repayments
You only pay the interest on the loan, not the principal, usually for the first one to five years although some lenders offer longer terms.
Many lenders give borrowers the option of a further interest-only period. Because you’re not paying off the principal, your monthly repayments are lower.
These loans are especially popular with investors who pay off the principal when the property is sold, having achieved capital growth.
Other Features
Redraw facility
This allows you to access any extra repayments you have made. Knowing you have access to funds can provide peace of mind.
Be aware lenders may charge a redraw fee and have a minimum redraw amount.
Direct Debit
Your lender automatically draws repayments from a chosen bank account.
Apart from ensuring there is enough cash in the account, you don’t have to worry about making repayments.
All in one home loan
This combines a home loan with a cheque, savings and credit card account.
You can have your salary paid into it directly.
By keeping cash in the account for as long as possible each month you can reduce the principal and interest charges.
Used with discipline, the all-in-one feature offers both flexibility and interest savings.
Interest rates charged to these loans can be higher.
Offset account
This is a savings account linked to your home loan.
Any money paid into the savings account is deducted from the balance of your home loan before interest is calculated. The more money you save, the lower your regular home loan repayments.
You can access your savings in the usual way, by EFTPOS and ATMs.
This is a great way to reduce your loan interest, as well as eliminate the tax bill on your savings.
Lenders provide partial as well as 100% offset accounts.
Be aware the account may have higher monthly fees or require a minimum balance.
Fixed Interest Rates
You can lock into a fixed rate for a low doc loan. These rates can be a little higher then what you see advertised but check with us and we can give you these rates at the time you take out the loan.
Depending on your financial position and your loan strategy, you can take either a principal and interest or interest only repayment option for the fixed term.
What you should know
Benefits
- Lower requirement for evidence of income.
- May overlook non-existent or poor credit rating.
- Generally have more equity in the property and not over extending yourself.
You should be aware of
- You will probably pay higher interest than with other home loan types, or may need a larger deposit, or both
- You can’t take advantage of professional packages
- Most lenders will only provide up to 60% of the purchase price and above this you will have to pay lenders mortgage insurance.
