LVR, LMI, WTF? Bank Jargon Explained

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LVR:  Loan to Value Ratio 

The loan amount divided by the value of the property as a percentage. LVR is important because less than 80% LVR usually means that you will avoid paying Lenders Mortgage Insurance (see LMI). Most lenders will only lend up to a maximum of 95% LVR. More lenders are offering further discounts for lower LVR’s. Lenders may offer discounts for lower LVR’s (eg below 60% LVR) so now is a great time to review your Home Loan rates.

LMI:  Lenders Mortgage Insurance

A one off fee that is typically required for loans above 80% LVR. This fee is an insurance premium that covers the Lender if you default and the sale of the property doesn’t cover the payout of the Home Loan. This insures the bank, not you.

COS: Contract of Sale. 

The written agreement signed by the buyer and the seller to confirm the purchase/sale price and conditions.

CRAA:  Credit Reference Association of Australia

Also commonly referred to as Equifax or Credit Report. This is the association that stores information on the credit enquiries made by a person as well as their conduct and any defaults. The credit score you have can affect your ability to qualify for the lowest rates. Contact Alpenglow Finance for a complimentary review of your credit report.

FHOG:  First Home Owners Grant

This is a Government grant available to first home buyers. The value can vary depending on location and policy changes with time.

FHLDS:  First Home Loan Deposit Scheme

This is a government scheme with limited spots available that can allow first home buyers to purchase a property with as little as 5% deposit (plus costs) and not pay Lenders Mortgage Insurance.

Genuine Savings:  

Genuine Savings are documented savings over a period of time from your income. Most lenders require a minimum of 3 months bank statements showing your savings history. The lender will confirm the deposit is from your genuine savings and has not been gifted or borrowed. This gives the lender comfort that the applicants have the ability to afford the proposed home loan repayments. Some lenders will allow rental payments as evidence of genuine savings.

Offset: A bank account connected to a Home Loan that instead of earning interest, saves interest off the Home Loan. 

PAYG: Pay as you Go. This is in relation to how a person pays their tax. A PAYG person is typically a person employed on a salary who has their tax deducted from their wages.

P&I: Principle & Interest. 

How repayments are set up for a Home Loan. Principle & Interest repayments will pay the interest portion of the Home Loan as well as paying the principle off over a certain period of time. P&I repayments are higher than Interest Only (see IO). However, your Home Loan will be paid off sooner, saving a large amount of interest being paid over the life of the loan.

IO: Interest Only

IO repayments mean only the interest portion of the Home Loan is paid. The Home Loan balance is not being reduced. This type of repayment is typically only allowed on Investment Loans and generally only approved for up to 5 years Interest Only at a time (Eg. 30 year loan term with 5 years Interest Only and 25 years Principle & Interest repayments).

RBA:  Reserve Bank of Australia. 

This is the Federal Government backed institution that governs the policy around interest rates.

SRO: Abbreviation for State Revenue Office. The state based Government body that controls Stamp Duty payments as well as Grants such as FHOG

SLA: 

Abbreviation for Service Level Agreement. This is most commonly used in the finance process when looking at the SLA’s for different lenders in regards to the time it takes for a loan application to be assessed, approved and settle. This is important when choosing a lender to ensure it will meet the required time frames.