CANNEX releases home loan star ratings report
CANNEX releases first-ever low-doc home loan star ratings report. A steady increase in the demand for low-documentation home loans in Australia has seen a number of new lenders entering the fray to cater to this growing segment of the home loan market.
From a handful of specialist lenders a few years ago, the sector now boasts over 385 loans offered by major banks, regional banks, credit unions and building societies, as well as the traditional non-bank lenders.
According to CANNEX, the market has doubled over the past four years to account for 16%, or $37.9bn, of total housing lending commitments. Market statistics forecast this to grow to over $54bn by 2011.
In its first low-doc home loan star ratings report, CANNEX has rated all low-doc home loans and awarded five stars to those offering superior value across three types of loans of loans – variable rate, 3-year fixed rate and revolving line of credit.
The convenience and flexibility of providing less documentation when applying for a loan comes with a tradeoff, however, and low-doc loans are generally expensive than conventional loans, even though the gap is shrinking all the time.
You should expect to pay $150 more per month when you use a low-doc loan compared to a traditional mortgage on a $250,000 loan because the average borrowing cost is just under 1% extra.
Even though they cost more, low-doc loans open up the home loan market to people who would have previously been excluded, such as self-employed, recent immigrants, those with fluctuating income levels and people who live off commissions or investments.
On the other hand, there are people who could obtain a traditional mortgage but choose not to fully disclose their financial situation and are prepared to pay a high price for financial privacy.
CANNEX notes that despite the increased risk exposure lenders perceive in reduced documentation, many will offer generous discounts in subsequent years to borrowers who make consistent payments with no history of arrears.
Consumers can download the CANNEX low-doc home loan star ratings report on its Website.
3-Aug-2007