Table of Contents
What is LVR?
Your loan to value ratio is the proportion of your property’s value that you are looking to borrow. In other words, it rates the size of your deposit compared to your borrowing amount.
It is calculated by dividing your home loan amount by your property value and multiplying by 100. Borrowers with an LVR of less than 80% are viewed as lower risk by lenders.
For example, if you were to borrow $750,000 for a property worth $1,000,000, your LVR would be 75%.
What is LMI?
Lenders’ Mortgage Insurance is a fee typically charged by lenders for customers who borrow more than 80% of the property’s purchase price (there are some important exceptions). LMI protects the lender in the event that your default on your loan.
The fee payable increases as the LVR and loan amount increases. It is often added to the final loan amount to allow borrowers to pay it off an a part of their regular repayments. Here is a useful calculator.
What is AAPR?
The Average Annual Percentage Rate is a way to show the true rate of your home loan over a seven year period. It accounts for factors like introductory offers and honeymoon rates.
The AAPR is generally considered more accurate that a comparison rate as comparison rates are calculated based on a loan amount of $150,000, far below the average loan value in today’s market.
What is DTI?
The Debt to Income Ratio compares your net debt to your total income. Your net debt is calculated by subtracting your total liabilities from your total assets.
Lenders use DTI as one factor in determining how risky a customer is to borrow money. The lower your DTI, the better the chances of having an application approved.
What is P&I?
Principal and Interest refers to a type of loan repayment that includes both principal and interest components.
What is IO?
Interest Only refers to a type of loan repayment that only includes the interest charged by your lender, not the principal.
Interest Only repayments are only applicable for a short period of time before reverting to Principal and Interest (P&I) repayments.
