The banks have generally across the board made a lot of changes to their lo doc policies. In the last few months we have seen most of the lenders now requiring a lot more information like BAS returns, bank statements etc which now puts the loan into a semi full doc position.

We do however still have access to a large number of lenders who still do the traditional lo doc loan up to an 80% LVR for purchases and re-finances.

If you’re interested in setting up a lo doc loan, or any of our other products, please contact us via phone or our online form.

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It would be wise to budget for further rate rises. When the interest rates hit an all time low, lenders were more generous on their serviceability calculators which meant that they were allowing the borrower to lend more money as the rates were low. As the rates steadily increase this obviously adds to higher repayments (unless you are on a fixed rate)

A lot of borrowers do not plan ahead and do not allow for the increase in repayments hoping that the rates will not go up. There are many factors that decide on rate increases and some of them can be outside the economists and financial guru’s predictions (just look at what happened last year with the global financial crisis)

Always try and plan ahead and do not lend more than you are comfortable at repaying your mortgage on a buffer of 0.5% or even 1% higher than your current interest rate.

Life is unpredictable and job loss, sickness and the economy can sometimes be totally out of your control.

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A significant number of lenders have been setting about putting up their fixed mortgage rates over the past three weeks. This usually indicates that the banks are expecting interest rates to go higher.

The rate cycle hit rock bottom a few months back and since then the fixed rates have been steadily climbing

Arguments for fixing

Repayment certainty is the predominant reason for fixing your home loan. A lot of people budget on certain repayments to be made and therefore a fixed home loan is the answer for this type of borrower.

If you are concerned about job security or you think our economy will recover to a point where inflation takes off and the Reserve Bank is forced to put rates up, then fixing can give you a high level of financial certainty.

Arguments against

The downside is most fixed rate home loans are inflexible. You can’t make extra repayments and if you need to change your loan or sell your house, expensive break costs apply.
Break costs are applicable when you sell your property or want to move your fixed rate loan to another product or swap to another lender altogether. This is probably the biggest reason to consider when fixing your home loan.

Before fixing your home loan always consider how long you intend keeping your property and be mindful of any factors out of your control which might force you to sell your property or change your home loan before the fixed period has expired.

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We have seen a lot of applicant’s loans being affected as the lending policies have become more stringent. This is mainly to do with the requirements of the lender mortgage insurance companies.

Lender Mortgage Insurance is an insurance which a bank has to take out on a loan whereby they lend over 80% of the value of the property or purchase price. This is for a full documented loan application. For a lo doc application the loan has to be insured when a lender lends over 60% of the value of the property or purchase contract.

This insurance is compulsory for the lenders and the downside is that the borrower has to pay for it. There is no benefit at all to the borrower as this insurance will pay out the lender if your loan defaults and the lender have to sell up your property in order to reclaim their funds. Most lenders will sell the property not at a profit but to get back the monies owed to them.

If there is a shortfall on the sale price and the monies owed to them, this is where the lender mortgage insurance companies kick in and pay the lender any shortfall.

Some lenders have their own in house mortgage insurance and therefore different lending criteria and policies will be in place, depending on who the lender is.

Ultimately the final decision on whether the lender can lend the money or not comes down to the lender mortgage insurance company and not the lender where lender mortgage insurance is involved.

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