The primary cost of a low doc loan is the interest rate premium. This is built into the ongoing rate and is not a separate fee. On a $400,000 loan, a 0.5% premium adds roughly $2,000 per year in additional interest. On a $700,000 loan, the same premium adds $3,500 per year.
At the higher end, a 1.5% premium on a $500,000 loan means roughly $7,500 per year or $625 per month more than a full doc borrower would pay. This is why choosing the right lender matters - the difference between a 0.3% and 1.5% premium on the same loan is substantial.
Beyond the rate premium, some lenders charge a low doc loading on lenders mortgage insurance (LMI) if applicable, though most low doc loans do not require LMI because the LVR is capped at 80%. Application fees may be slightly higher with some lenders, and valuation requirements may be stricter - some lenders require a full valuation rather than accepting an automated one.
There are no ongoing low doc fees beyond the rate premium itself. The premium is simply reflected in your interest rate, which means it compounds over the life of the loan. This is why refinancing to a full doc rate once you have tax returns is such an effective strategy.
Jason and Steve are Adelaide mortgage brokers who give honest advice at no cost to you. No obligation.
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