In the world of home loans, it’s easy to get confused with all the jargon thrown about. Here are some of the property world's most common acronyms decoded.
It’s 3 letters and yet this could be the most important aspect of saving for your home loan. LVR is the Loan to Valuation Ratio, which is shown as a percentage of the amount of your loan against the valuation of your property. In other words, it rates the size of your deposit (or equity if you already own a home) against how much you are borrowing. The lower the LVR the better!
For example, if you were to take out a $500,000 for a property worth $600,000, your LVR would be 500,000 divided by 600,000 which would convert to 83%. Any home loan with an LVR over 80% is considered high risk by lenders which could mean extra fees for you.
Read our guide to LVR here.
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Lenders Mortgage Insurance (LMI) is a fee charged by home loan lenders. It is typically required by a lender if the borrower is borrowing more than 80% of the property purchase price. It protects the lender in the event that the borrower defaults and is unable to meet their loan repayment obligations.
LMI can be paid in full at settlement, however most lenders will add it to the total loan amount so it can be paid off on top of the borrower’s monthly loan repayment. LMI is calculated as a percentage of the amount borrowed. The fee the borrower pays increases as the LVR and loan amount increases. This fee varies slightly from lender to lender and depends on a number of variables.
Read our guide to LMI here.
The Average Annual Percentage Rate is another way of calculating the real rate of your home loan. This is done by taking your loan amount and, taking into consideration additional fees such as honeymoon fees and introductory offers, finds the rate over a 7 year period. It is often considered the ‘true’ or ‘real’ rate you will end up paying on your home loan.
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