How Well Do You Know Your Finance Jargon?

The finance industry has a bunch of acronyms and abbreviations that can make the home buying process a little confusing.

But they’re not as difficult to understand as you might think.

Take our short quiz to see how many you can answer!⁣⁣Below we’ve listed eight commonly used acronyms and abbreviations in the mortgage and finance industry.

⁣⁣So grab a pen and some paper and test out that noggin of yours!⁣⁣

Quiz time

You'll get one point for each acronym you can identify, and an extra point if you know what it means.⁣⁣

1. LVR⁣⁣

2. LMI

⁣⁣3. FHB⁣⁣

4. FHLDS⁣⁣

5. Low Doc

⁣⁣6. DTI⁣⁣

7. ADI⁣⁣

8. FHOG⁣⁣

Once you’ve written down your responses, scroll down for the answers below

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1. LVR: Loan to Value Ratio

LVR is the percentage of the property’s value, as assessed by the lender, that your loan equates to.⁣⁣For example, if the property you want to purchase is valued at $500,000, and you need to borrow $400,000 to pay for it, the loan is worth 80% of the property value, making your LVR 80%.⁣⁣

2. LMI: Lenders Mortgage Insurance

LMI is insurance that protects the bank or lender in case you can’t pay your residential mortgage.⁣⁣It’s usually paid by borrowers with an LVR higher than 80% – that is, borrowers with a deposit of less than 20%.⁣⁣

3. FHB: First Home Buyer

⁣⁣This one is pretty self-explanatory. Basically, a FHB is someone who has never purchased property before but is in the process of doing so.⁣⁣Being a FHB allows you to take advantage of a number of federal and state government schemes and incentives, which we’ll cover below.⁣⁣

4. FHLDS: First Home Loan Deposit Scheme

The FHLDS is a federal government scheme that allows eligible FHBs with a 5% deposit (aka 95% LVR) to purchase a property without paying for LMI.⁣⁣This can save FHBs thousands of dollars (sometimes even tens of thousands!) and help them enter the property market sooner.⁣⁣

5. Low Doc: Low Documentation home loan

Low doc home loans are often used by self-employed borrowers who find it difficult to provide conventional proof of income. That’s because many self-employed people try to minimise their taxable income to pay less tax, but this creates problems when they try to borrow.⁣⁣Fortunately, low doc loans don’t require the same level of “documentation” as normal loans and are specifically designed for self-employed people who are capable of servicing a loan.⁣⁣

6. DTI: Debt-to-Income ratio

Your DTI is used by lenders to determine if you can afford to take on any more debt. Basically, it compares your total debt to your gross income.⁣⁣The formula is: Total Debt / Gross Income = Debt to Income ratio.⁣⁣So if you have a $500,000 home loan (and no other debt), and $160,000 in gross household income, your DTI is 3.125.⁣⁣

7. ADI: Authorised Deposit-taking Institution

ADIs are financial institutions that are licensed by the Australian Prudential Regulatory Authority (APRA) to carry on banking business, including accepting deposits from the public.⁣⁣They are generally banks, building societies and credit unions.⁣⁣

 8. FHOG: First Home Owners Grant

FHOG are generally state government-run grants available to eligible first home buyers to help them get a leg up into the property market.⁣⁣Typically, they’re in the vicinity of $10,000 to $20,000, and in many states they’re available alongside stamp duty exemptions and federal government initiatives, such as the $25,000 Homebuilder Grant.⁣⁣

 How’d you score? ⁣⁣

If you scored 1-4: Hey, no worries! We all started out with this score. And to be honest, we enjoy nothing more than helping people embark on their property buying journey.

⁣⁣If you scored 5-8: Have we met before? I’m sure we have. You seem pretty well-versed in the world of property and finance. We should have a chat again soon to discuss your next steps on the property ladder.⁣⁣

If you scored 9-12: You likely either work in the finance industry, are a savvy property investor, or we’ve taught you well! Long story short: you know your stuff!⁣⁣

If you scored 13-16: Ok, so you either work for us, are married to one of us, or you’re one of our competitors sussing us out! If you scored in this range, take a bow!⁣⁣

 Last but not least! ⁣⁣If you ever want to clarify anything with me – whether that be acronyms, abbreviations or any other finance topic – then please don’t hesitate to reach out!