In the world of home loans, it’s easy to get confused with all the acronyms you can encounter.

In this article, we decode some of the most common mortgage acronyms so you can be better informed on your home loan journey.

- __Related:__ [How much can I afford to spend on a house in Australia?](https://www.lendi.com.au/inspire/finance/how-much-can-i-afford-on-a-house-in-australia/)
- __Related:__ [How to buy your first home in 2022](https://www.lendi.com.au/inspire/finance/how-to-buy-your-first-home-in-2022/)
- __Related:__ [Lenders Mortgage Insurance](https://www.lendi.com.au/home-loans/lmi/)

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## What is LVR?

These three letters could be the most important aspect of saving for your home loan. [LVR](https://www.lendi.com.au/guides/lvr/) means Loan to Value Ratio, which is the portion of the total value of a property that a person is borrowing. 

It is expressed as a percentage and is calculated by dividing your home loan amount by your property's value then multiplying this number by 100.

In other words, it measures 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 this will be for you in the eyes of lenders.

Lenders typically favour borrowers with an LVR of 80% or lower. However, you can still get a home loan with an LVR higher than 80%, but you may have to pay LMI (more on that soon).

For example, if you were to take out a home loan of $500,000 for a property worth $600,000, your LVR would be 500,000 divided by 600,000 multiplied by 100, which would equal 83%.

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## What is LMI?

[Lenders Mortgage Insurance (LMI)](https://www.lendi.com.au/guides/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's purchase price, but it is possible to have an LVR of over 80% and [avoid paying LMI](https://www.lendi.com.au/inspire/finance/how-can-i-avoid-paying-lmi/).

LMI protects the lender in the event that the borrower defaults on their home loan and is unable to meet their [loan repayment](https://www.lendi.com.au/calculators/home-loan-repayment-calculator/) obligations.

LMI is calculated as a percentage of the amount borrowed. The fee the borrower pays will increase as the LVR and loan amount increase. 

It varies slightly between lenders and depends on a number of variables, such as:

- The loan type
- What the property is being used for
- A borrower's employment stability.

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 repayments.

%%How much can you borrow?%%

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## What is AAPR?

The Average Annual Percentage Rate (AAPR) is a method of calculating the real rate of your home loan. 

Also known as APR (Annual Percentage Rate), it takes into consideration additional factors like introductory offers and honeymoon rates to calculate the true cost over the life of the loan.

AAPR calculates this cost by using a 7 year period.

Looking at the AAPR is important because it finds the cost of your home loan by taking into account fees and charges outside of just your interest rate. 

While it is similar to a comparison rate, AAPR is considered to be more accurate, as comparison rates are calculated based on a loan amount of $150,000 - most loans exceed this amount these days.

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## What is DTI?

DTI (debt to income ratio) is a ratio that compares the amount of debt you have to your total income. 

It is calculated by adding up all your credit and debt balances and dividing this amount by your total gross annual income.

DTI is taken into account by lenders in the home loan application process. Lenders will examine your DTI to decide [how risky it might be to lend money to you](https://www.lendi.com.au/inspire/finance/how-your-debt-impacts-your-borrowing-power/). 

The lower your DTI, the more likely it is a lender will want to lend to you.

%%Got your eye on a property down the street?%%

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## What is P&I?

P&I refers to principal and interest, and is used to describe a [type of home loan repayment](https://www.lendi.com.au/home-loans/repayment/). 

P&I repayments are your [monthly repayments](https://www.lendi.com.au/home-loans/repayment/) on your home loan that include the principal (the loan amount) and interest (according to the [interest rate](https://www.lendi.com.au/home-loans/interest-rates/) charged by your lender).

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## What is IO?

IO refers to [interest only](https://www.lendi.com.au/inspire/finance/can-you-extend-your-interest-only-home-loan/), which is another type of home loan repayment. 

IO repayments only include the interest charged on your loan by your lender, and not the principal, or the loan amount.

This type of home loan repayment is only applicable for a short period of time before your lender will require you to make P&I payments.

Do you need help finding the right home loan for you? Lendi's Home Loan Specialists are here to chat – [book an appointment](https://www.lendi.com.au/book-appointment/) at a time that suits you.

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## What could your home loan repayments look like?

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## Got a home loan question? Just ask!
We're here to help. Get free expert advice at a time that suits you. Choose a time to chat with a [Home Loan Specialist here](https://www.lendi.com.au/book-appointment/)

*The information in this post is general in nature and should not be considered personal or financial advice. You should always seek professional advice or assistance before making any financial decisions.*

Find out what your monthly repayments might look like.

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