Goodbye Lo Doc and No Doc
- Thread starter WinstonWolfe
- Start date
The other, and probably most valid reason for Lo Doc loans is TAX DEDUCTIONS people.
Taxable income vs actual income can be a very big difference, and as all the self employed people out there will do their best to decuct every possible expense, Taxable Income looks like an apprentice electrician.
And when all is said and done, taking a higher rate is by far and away the cheapest way out for most self employed people.
Consider -
Full Doc loan @ 8.7% on $300,000 = $26,100p.a interest.
Lo Doc Loan @ 9.2% on same = $27,600 p.a interest.
It does not take a rocket scientist to figure out if you have only a few thousand dollars in deductions, you are financially better off with the higher rate.
Imagine if above borrower was grossing 100k, and taxable income after deductions was 70k? 13k tax saving or 1,500 more in interest. hmmmmmm?
This is why Lo Doc loans are so useful, and will not disappear in a great hurry. It is just a shame that there are still narrow minded individuals that just assume they are for liars or borrowers that cant afford their loans.
Anyway, thats my 2c
Taxable income vs actual income can be a very big difference, and as all the self employed people out there will do their best to decuct every possible expense, Taxable Income looks like an apprentice electrician.
And when all is said and done, taking a higher rate is by far and away the cheapest way out for most self employed people.
Consider -
Full Doc loan @ 8.7% on $300,000 = $26,100p.a interest.
Lo Doc Loan @ 9.2% on same = $27,600 p.a interest.
It does not take a rocket scientist to figure out if you have only a few thousand dollars in deductions, you are financially better off with the higher rate.
Imagine if above borrower was grossing 100k, and taxable income after deductions was 70k? 13k tax saving or 1,500 more in interest. hmmmmmm?
This is why Lo Doc loans are so useful, and will not disappear in a great hurry. It is just a shame that there are still narrow minded individuals that just assume they are for liars or borrowers that cant afford their loans.
Anyway, thats my 2c
Hello MortgagePlus
I have read your post three times and I still a little confused but am I right in saying the gist is:
Some self employed persons earn cash income which they don’t declare and hence have a taxable income of $70k but an investment serviceability income of $100k. And thus it is worth the extra $1,500 interest against the saving in tax.
I don’t usually criticize a new poster so if I am reading it wrong I apologize but if that is correct reading you appear to be saying Tax Evasion is ok and Low Docs loans help that.
No arguement here in the mechanics. Most here know that, as does the ATO who target Low Docs, the Loan Providers who price accordingly..
So in closing your claim that "individuals who assume they are liars" are "narrow minded" is incorrect. In this instance our opinion on the use of low Docs loans is wise and right on the money.
Regards Peter 14.7
I have read your post three times and I still a little confused but am I right in saying the gist is:
Some self employed persons earn cash income which they don’t declare and hence have a taxable income of $70k but an investment serviceability income of $100k. And thus it is worth the extra $1,500 interest against the saving in tax.
I don’t usually criticize a new poster so if I am reading it wrong I apologize but if that is correct reading you appear to be saying Tax Evasion is ok and Low Docs loans help that.
No arguement here in the mechanics. Most here know that, as does the ATO who target Low Docs, the Loan Providers who price accordingly..
So in closing your claim that "individuals who assume they are liars" are "narrow minded" is incorrect. In this instance our opinion on the use of low Docs loans is wise and right on the money.
Regards Peter 14.7
Well Peter as self employed you might be duducting car expenses, home office expensenses (utilities), etc etc. The end result might seem like a relatively lower income but may expesnses that a PAYG employee woud pay in after tax income the business person may have been able to legitimately pay for pre salary.
Hi GoAnna!
I think you have missed my point. Or I have missed MP's completely?
I agree with your post and as a small business man you can be assured I/we deduct every expenses we can. All of yours listed and more (income split, family trust, etc) and we gladly pay our Accountant $5k to find everyone AND ensure we are well above the ATO law.
And then my accountant puts in our returns and I go and get my full docs loan at the best rates less Wealth Plus discount of 0.7%. Imean why would I pay more?
I know the banks don't accept income as the bus owner the same as a job and I agree this is annoying but in the world of GST and quarterly returns any good business knows exactly where it is at.
I saw MP comment as when you don't have the income on paper, but in the hand and want to keep off the books that low docs come in play. So my point is whilst Low Docs do have role to play in the legit world as Rolf expertly put ......let’s not fool ourselves they are also good friends of "Johnny Cash" as we say in the building game.
I guess the question is: with the loan market meltdown will they survive?
Peter
PS I will note that Low Docs loan do allow you to get finance on income of $100k and then you divert say $30k of that years income into super setting your income at $70k. How it stacks up (tax v interst) needs crunching but that is not illegal black money but simply a change in how you allocate your earnings. Damm, I found another plus for Low Docs.
I think you have missed my point. Or I have missed MP's completely?
I agree with your post and as a small business man you can be assured I/we deduct every expenses we can. All of yours listed and more (income split, family trust, etc) and we gladly pay our Accountant $5k to find everyone AND ensure we are well above the ATO law.
And then my accountant puts in our returns and I go and get my full docs loan at the best rates less Wealth Plus discount of 0.7%. Imean why would I pay more?
I know the banks don't accept income as the bus owner the same as a job and I agree this is annoying but in the world of GST and quarterly returns any good business knows exactly where it is at.
I saw MP comment as when you don't have the income on paper, but in the hand and want to keep off the books that low docs come in play. So my point is whilst Low Docs do have role to play in the legit world as Rolf expertly put ......let’s not fool ourselves they are also good friends of "Johnny Cash" as we say in the building game.
I guess the question is: with the loan market meltdown will they survive?
Peter
PS I will note that Low Docs loan do allow you to get finance on income of $100k and then you divert say $30k of that years income into super setting your income at $70k. How it stacks up (tax v interst) needs crunching but that is not illegal black money but simply a change in how you allocate your earnings. Damm, I found another plus for Low Docs.
A legit use of a lo doc even when income can be proven might be similar to my own case.
I can prove what I earned last year, having had a good year. I'm also doing quite well this financial year (figures are similar to last year at the moment). The problem was the year before was not as good as I had a lot of expenses, many of them one-off.
Many lenders will want to see two years of consistent tax returns, but I can only show last years and a few BAS statements. Hence a lo doc is a useful product for my situation.
BTW Peter, I'm wondering why you'd refinance to a full doc Wealth package from a lo doc? The Wealth package should be available under the lo doc policy with the same rates. The only difference is the LMI which you've already paid and are unlikely to get back.
I can prove what I earned last year, having had a good year. I'm also doing quite well this financial year (figures are similar to last year at the moment). The problem was the year before was not as good as I had a lot of expenses, many of them one-off.
Many lenders will want to see two years of consistent tax returns, but I can only show last years and a few BAS statements. Hence a lo doc is a useful product for my situation.
BTW Peter, I'm wondering why you'd refinance to a full doc Wealth package from a lo doc? The Wealth package should be available under the lo doc policy with the same rates. The only difference is the LMI which you've already paid and are unlikely to get back.
Hey PT Bear,
Sorry I am confusing people. I never had a Low Doc, I was just saying how I had my IP loans set up. I apply the "stick to one Bank and get a good bankie and keep them close and threaten to walk" approach. Dont use LMI anymore having enough equity.
This thread is interesting as it has identified a number of uses I would not have considered. Your last one would apply to us if we were start up but we are 7 year old mature business with consistent returns. I always like to point out to my Banker that "is it not a bit silly", my employee can get 80% LVR on no more than a letter from me and two payslips yet I need two years figures and every scrap of Tax data. I mean if I am going under does not my employee go as well?
Peter
Yeah, We actually issue payslips for oursleves being Pty Ltd. I think the box "are you self employed" might be harder.
Peter
Brilliant point Peter.
Though I've lost all confidence in banks to evaluate risk.
They're the ones that thought January 08 property prices were not at risk of falling....why otherwise would they finance them at those prices if they'd understood back in July 07, the innate risk of sub prime losses being written off?
whoops...oh that's right....they profit from making more and larger loans....so they get the short term upside right....but pretty pss poor on the no.1 rule of business and investing -> preserve capital...protect the downside.
Hi Winston
Why do "they" do it ?
Because profits will flow to shareholders, and losses (if contained) will be spread to all customers, and if the losses cant be contained, its likely the losses will be socialised.
So is the only real risk to manage their cashflow ?
Ta
rolf
Why do "they" do it ?
Because profits will flow to shareholders, and losses (if contained) will be spread to all customers, and if the losses cant be contained, its likely the losses will be socialised.
So is the only real risk to manage their cashflow ?
Ta
rolf
i went lo-doc because i was only ABN registered for 18m, and had $40k of outstanding invoices.
funnily enough, the price i signed my build contract was $267k. i made a few changes, added a few solid inclusions (high ceilings, large conc soakwells etc) and the build price went to $295k.
CBA said that no extensions were to be made to lo-doc customers - and especially "not this case" due to the fact i've missed a CC payment...suddenly i'm a huge risk!!!! never mind the fact the CC is REQUIRED as part of the CBA MAV package AND is 90% lower today than when i got it 6m ago.
mr ATO will just have to wait for his money this year.
funnily enough, the price i signed my build contract was $267k. i made a few changes, added a few solid inclusions (high ceilings, large conc soakwells etc) and the build price went to $295k.
CBA said that no extensions were to be made to lo-doc customers - and especially "not this case" due to the fact i've missed a CC payment...suddenly i'm a huge risk!!!! never mind the fact the CC is REQUIRED as part of the CBA MAV package AND is 90% lower today than when i got it 6m ago.
mr ATO will just have to wait for his money this year.
Google hot trends has never had so many financial phrases in it.....
Am sure I've seen 'moral hazard' and 'capitalize the profits, socialize the losses' in the top 100 recently
And there'd be a lot more if google filtered the porn.
Though 'decoupled' has disappeared.
If banks were websites (not hard to imagine):
Cashflow mgt would be the boring old backend....(no risk there once all the math is plugged in.)
Using bling to manipulate consumer confidence would be the frontend. (now there's the risky bit)
Add a bit of central bank bling and you got a SAFE fractional reserve banking system....well, safe for the banks whose failure threatens the system...
Hang on...I lost track of what risk we are talking about.....ah that's right...the major banks'.
If their failure is a serious risk to the financial system, and the cb must protect the system at all costs, then the majors' management of cash flow doesn't even have risk.
Hiya
in all the doom, new RAMS are releasing an 85 % lo doc backed by WBC LMI, thus bulk reinsured by GE
Its going against the trend
ta
rolf
in all the doom, new RAMS are releasing an 85 % lo doc backed by WBC LMI, thus bulk reinsured by GE
Its going against the trend
ta
rolf
Rolf, that's very interesting. Is LMI payable or is it loaded in the interest rate like the WBC product?
if WBC source Rams funds using WBC AA credit rating, it is a serious competitive advantage over the rest of the non bank shop fronts.
That's great news Rolf.
Am hoping for more competition in this market.
RAMS lender is telling me RAMS in process of using a second mortgage insurer (apart from GE).
This would be a good time for a lender with access to reasonable priced funding to acquire a large part of the lo doc market. RAMS and Westpac must be fairly confident about future direction of Australian property prices.
Ajax
Am hoping for more competition in this market.
RAMS lender is telling me RAMS in process of using a second mortgage insurer (apart from GE).
This would be a good time for a lender with access to reasonable priced funding to acquire a large part of the lo doc market. RAMS and Westpac must be fairly confident about future direction of Australian property prices.
Ajax
The other strategic advantage is it will improve market share when most are too nervous to buy.
Much of the business they pick up should be savvy investors buying prime property for silly prices (presume they'll be more careful with the fhb's).
Ah what the heck Rolf. WBC carries no risk if a severe recession hits......except the risk of GE failing......but then the RBA would 'not let them fail'. How can anyone compete with that?
Much of the business they pick up should be savvy investors buying prime property for silly prices (presume they'll be more careful with the fhb's).
Ah what the heck Rolf. WBC carries no risk if a severe recession hits......except the risk of GE failing......but then the RBA would 'not let them fail'. How can anyone compete with that?
Peter, another benefit with using low docs is I know what loans I can afford. This is more than the bank models will allow. When your income gets higher, the banks models don’t necessarily decrease the living expenses accordingly eg. I don’t know about you, but I don’t need $40-50k per year to live on excluding loan repayments.
You’re also assuming a bit about interest rates. A good low doc loan does not have to be anymore expensive than a regular loan and you can get the same package discounts available to normal loans, so there is literally no penalty for going for a low doc as opposed to a standard (with the exception of a lower LVR).
You’re also assuming a bit about interest rates. A good low doc loan does not have to be anymore expensive than a regular loan and you can get the same package discounts available to normal loans, so there is literally no penalty for going for a low doc as opposed to a standard (with the exception of a lower LVR).
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