Interest rates

Low Doc Home Loans interest rates.

Interest rates for low doc home loans can and do vary widely.

Currently there are three year fixed rates starting from 5.57% (CR 6.11%).  This low doc home loan is available through non bank channels. It is generally in line with normal home loan rates. Remember, you cannot walk into one of the big four banks and get this loan.

For Low Doc home loans, normally, if the LVR is 60% or less then the interest rate for  low doc home loans is similar to or the same as normal home loan rates. When the LVR starts to increase or there is some form of credit impairment that the spread between low doc home loans and normal home loans will start to widen.

Having said that, be careful in regards to which low doc home loan lender you go with. Lenders generally have the right to vary interest rates even after the low doc home loan has started.

There may be a perception that by going though one of the big four banks you will get a good low doc home loan rate.

however, the Commonwealth Bank (CBA) has recently advised its broker network to contact their low doc home loan customers to advise them that the bank will be raising the interest rates for some existing low doc home loans customers by 0.25%

CBA has said that it would be writing to all its existing low doc home customers with loans that were funded before 1 April 2012 to advise them interest rates will be lifted unilaterally. This means even though other rates are falling the rates for low doc home loans customers will increase mid December 2012

How significant is this move for low doc borrowers?

Well, to put things in perspective  it is believed that CBA currently has over $5 billion, yes $5 billion worth of low doc home loans on its books.




Exit Fees Banned

Starting today, Loan exit fees are banned. This includes low doc loans.

This new measure has been designed by government to make home loans more competitive..

“Part 7-2A ‘Prohibited credit fees and charges’ of the National Consumer Credit
Protection Amendment Regulations 2011 (No. 2) prohibits charging customers
termination fees if a credit contract is entered into on or after 1 July 2011.

Some non banks were charging very high loan exit fees, such as 1 or 2% of the original loan amount. They were so high they wiped out any savings consumers might get from switching to a cheaper home loan with a new lender.

Of course new loans, including low doc loans will not have loan exit fees, however there are a lot of low doc loans out there with deferred establishment fees already in place.

This increased competition will make it easier to switch to a better home loan deal if you become unhappy with your current home loan.

It means more financial choices and if lending institutions introduce unfair fees they can be fined.

For more information see the government home page of Banking Reforms.