Low Doc Loans Lenders Mortgage insurance is generally payable on low doc loans where the loan is greater than 60% of the purchase price or refinance amount. This lenders mortagage insurance (LMI) is a once off fee up to 80%.
So why are lenders charging this lmi?
The starting point is full document home loans. With full document loans it is normal to pay mortgage insurance for home loans over 80% This is because with a full document loan a lender normally requires two years financial, two years personal and company tax returns. Having all this information means the lender has a wealth of information to enable them to make a credit decision.
With a low doc loan not as much information is provided, so a lender may perceive a low doc loan is more risky. To cover this perceived risk, between 60 and 80% the lender will mortgage insure the loan.
In a nutshell, the bands are as follows:-
60% LVR No Mortgage insurance and generally the cheapest type of low doc loan.
70% LVR No mortgage insurance, however the low doc interest rate may be higher to compensate for the risk.
80% LVR Mortgage insurance. A once off lenders mortgage insurance fee payable at settlement of the loan. As a guide and guide only this fee may be around 1% of the loan amount eg on a $300,000 low doc loan this may be a once off premium of approx. $3,000. Note this is a guide only as mortgage insurance premiums can fluctuate between lenders.
85% LVR Mortgage Insurance is replaced with a lenders risk fee. This is where a lender self insures the loan themselves. These are normally the most expensive low doc loans in regards to both interest rate and insurance.
For more information about low doc loans mortgage insurance please call us on 1300 LOW DOC
The following new products have become available:-
Low Doc Loans 80% Residential with no mortgage insurance payable
Low Doc Commercial Loans with no mortgage insurance payable.