A TLA is a Three Letter Acronym. The banking industry is fraught with TLA’s and other code words that I assume at one stage were designed to confuse the public consumers and enhance the bank and financier status, as they understood them.
In this newsletter and those that follow, we are going to try and explain a few of the TLA’s associated with finance and mortgages and hopefully you will then be one step closer to understanding some “bank speak”.
LVR – Loan to valuation ratio.
This is a ratio measure of the loan size in $dollars versus property value in $dollars. As an example a property worth $500,000 with $400,000 secured against that will have an LVR of 80%. If the loan was $450,000 the ratio would be 90%
COS – Contract of sale
This goes by various names in various states but generally refers to the contract signed between a buyer and seller regarding a property.
TOL – Transfer of land
After the finance application has been approved, the solicitors or settlement agents prepare a transfer of land that is the document that advises the land authority of the change of ownership of a property. It is also the document that provides a trigger for the state revenue department to assess the amount of stamp duty payable.
UMI – Uncommitted monthly income
When assessing serviceability or suitability for a loan the broker and the bank will work out total income less total expenses and that will lead to (hopefully a surplus) which some lenders call UMI or uncommitted monthly income.
DSR – Debt service ratio
Some lenders use a variant on UMI above to assess serviceability. This is the debt service ratio which is a comparison of total income versus total commitments. There are many ways lenders use this ratio but essentially it has to be greater that 1:1 to evidence ability to service debts.
FTC – Funds to complete
When purchasing a property and taking a loan against a property – the loans are never for 100% of the price and the difference (whether borrowed or cash) is called funds to complete.