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LVR – Loan to value ratio. This is calculated by dividing the amount owed on a property by the value of the property (the security) as a percentage.
| Example: |
Proposed loan amount = $200,000
Property Value = $300,000
$200,000 divided by $300,000 then hit % button on calculator = 66.66% LVR |
Most Lo Doc or No Doc Loans need to be 80% LVR or below or the lenders will not give finance.
Full Doc loans incur LMI if they go over 80% LVR
Lo Doc – If the client has been self employed (ABN) for 2 years or more, they can borrow 80% of the value of a property without providing proof of income
No Doc – The client can borrow a percentage (60% 70% or 80% depending on the lender) of the value of the property without proof of income and without being self employed or alternatively having an ABN for one day.
Full Doc – The client provides 2 pay slips and 2 group certificates if PAYG or the two latest tax returns if self employed. Providing serviceability is evident the client can then borrow 80% of the value of the property (or security) without LMI and up to 100% with LMI.
LMI - Lenders Mortgage Insurance is a policy that the Lender requires the client to take out when borrowing more than 80% of the value of the security. LMI covers the lender in the event of default not the client. LMI is expensive (sometimes over $10,000) and non refundable upon refinance.
Serviceability – The amount of income required to service the level of debt. Each lender has its own calculator for this. They generally take into account other debts and dependents. (See attached example.)
Non-Conforming – or credit impaired loans are given to clients that fall outside the normal lending criteria because of defaults, arrears or unusual securities (rural, multi-dwelling) and attract a higher interest rate. These loans are sourced through specialist or non-conforming lenders.
Mortgage Offset – An account that can be used as a regular savings account but is linked to the mortgage and the balance offsets the interest on the mortgage.
| Example: |
Mortgage Balance = $100,000
Offset Account Balance = $10,000
Interest charged on = $90,000 |
Line Of Credit – or equity loans are very flexible, but usually attract a higher interest rate.
The loan has a credit limit that is not necessarily the balance and only the interest needs to be paid. The loan can be drawn from the balance up to the limit at any time.
| Example: |
Credit limit of loan = $150,000
Balance = $100,000
Redraw Available = $50,000 |
Extra payments can be made anytime. These types of loans are often used for renovations etc. where it is better to draw down the loan in increments rather than all at once.
Construction Loans – When building it may be six months to a year from purchase of land to completion. A construction loan allows a progressive draw down of funds, usually at five stages beginning with land purchase and ending in completion. The lender will usually make three inspections during construction.
Bridging Loan - is a short term loan to allow you to finance the purchase of a new property before you have sold your existing property.
No Deposit Home Loan - allow you to borrow 100% of the value of the purchase property. With this type of loan, you will need a good credit history (small personal loans and credit cards are often ok) and proof of stable income. This type of loan usually attracts a slightly higher interest rate. |
