A Comprehensive Guide to the Global Capital Funding Glossary and its Terminologies for Private Equity and Debt Financing

The global capital funding glossary is an essential tool for anyone involved in the capital funding industry. It provides a comprehensive list of terms and definitions related to the various aspects of commercial mortgage capital funding, from venture capital to private equity, and more. With this glossary, investors, entrepreneurs and other stakeholders can quickly become familiar with the terminology used in the industry. This will help them make informed decisions when it comes to investing or seeking funds for their business ventures. Additionally, the glossary can also be used as a reference guide by professionals in the field who need to stay up-to-date with new terms and trends in the industry.

 

  • Absorption Rate refers to the speed at which available real estate space is either leased or sold in the market. This rate is typically expressed in square feet per year or in the number of units occupied per year in the case of multi-family housing.
  • An Acceleration Clause is a provision in a mortgage that allows the lender to demand payment of the outstanding loan balance under certain conditions, such as default or violation of loan covenants. The most common reasons for accelerating a loan are if the borrower defaults on the loan or transfers the property title to another person without informing the lender.
  • An Acquisition and Development Loan (A&D Loan) is a type of loan used to purchase and prepare raw land for development. The source of repayment is usually through a construction loan or land sale.
  • An Adjustable Rate Mortgage (ARM) is a real estate loan in which the interest rate charged or the length of the loan, or both, can fluctuate. The borrower is responsible for absorbing the uncertainty of changes in interest rates during the life of the loan. All ARM loans are linked to an index, such as government securities, and are also referred to as variable rate mortgages.
  • The Adjustment Date is the date on which the interest rate changes on an adjustable-rate mortgage.
  • Amortization refers to the gradual reduction of a loan balance over time through regular payments. The loan payment is divided into a portion that pays the accruing interest on the loan, and the remainder is applied to the principal balance. As the loan balance decreases over time, the portion of the payment applied to the principal increases.
  • An Amortization Schedule is a table that displays how much of each payment is applied to the principal and how much is applied to the interest over the life of the loan. It also shows the gradual decrease of the loan balance until it is fully paid off.
  • Anchored Centers are a type of shopping mall that has a main tenant, known as the Anchored Tenant. This usually consists of popular stores like large chains or department stores, which are placed strategically in the center to maximize customer and revenue potential. Every business in the shopping center has their own customers, who come to shop from them.

  • The Annual Loan Constant is the ratio of the annual debt payment on a loan to the original amount borrowed. This ratio is also referred to as the mortgage constant.

  • An Appraisal is a demonstrative narrative report that assesses the value of a property and the specific market's economic condition. This report is typically performed by a member of the American Institute of Real Estate Appraisers and is based on three separate methods of valuation: the replacement cost approach, the sales comparison approach, and the income approach. For commercial real estate transactions that require an appraisal, an M.A.I. certified appraisal is required.

  • Appreciation refers to the increase in the value of a property due to changes in market conditions, inflation, or other causes.

  • Arbitrage is the simultaneous buying and selling of securities, including mortgages, mortgage-backed securities, or futures contracts, in different marketplaces for the purpose of realizing a profit from different prices.

  • Assessed Value refers to the valuation placed on a property by a public tax assessor for purposes of taxation.
  • Assessment is the process of placing a value on a property for the purpose of taxation.
  • An Assessor is a public official who establishes the value of a property for taxation purposes.
  • An Asset refers to items of value owned by an individual. Assets that can be quickly converted into cash are considered "liquid assets," such as bank accounts, stocks, bonds, mutual funds, and others. Other assets include real estate, personal property, and debts owed to an individual by others.
  • Assignment refers to the transfer of ownership of a mortgage from one company or individual to another.
  • An Assumable Mortgage is a mortgage that can be assumed by the buyer when a property is sold. However, the borrower must qualify to assume the loan.
  • Assumption is the term applied when a buyer assumes the seller's mortgage.
  • Attornment refers to a tenant's formal agreement to be a tenant of a new landlord.
  • The Average Daily Rate (ADR) is the average amount charged by a hotel for one room in a day. It's calculated by dividing the total revenue generated from all rooms over the period of time by number of rooms occupied during that period. This helps to determine an accurate actual room revenue figure.
  • Amortizing loans are loans that come with provisions for gradual repayment of both the principal and interest amount. This type of loan is calculated by taking an average life into consideration, meaning it takes into account periodic payments over time. Only with a full balloon at the end, the average life will equal the maturity. Amortization leads to principal being paid throughout the loan tenure which helps reduce balloon payments amount. This enables people to create more reasonable payment plans with lower overall interest, making it easier for them to repay the loan. This number is then used to find the treasury that is equal to or greater than the remaining term.
  • Average Life is a way to look at how loans or bonds can handle payments of principal. If a loan is only in interest and consists of a complete balloon payment at the end, then the average life period is the same as its by making regular amortization payments, you can reduce the amount of the balloon payment you would otherwise owe. This calculation can help you decide which treasury to keep operational for the rest of its remaining term or beyond.
  • Balloon Mortgage is a loan that requires the borrower to pay the remaining principal balance at a specific time. For instance, the loan may be structured as if it would be repaid over a thirty-year term but mandates that the entire outstanding balance be paid at the end of the tenth year.
  • Balloon Payment is the final lump sum payment due at the end of a balloon mortgage.
  • Bankruptcy is a legal process that permits individuals to discharge or restructure their debts and obligations by filing in federal bankruptcy court. Several bankruptcy types exist, but the most prevalent for individuals is the Chapter 7 No Asset bankruptcy that discharges most types of debts. Borrowers usually cannot qualify for an “A” paper loan for two years following the bankruptcy's discharge and must re-establish their ability to repay debt.
  • Basis Points are one-hundredth of one percent and are commonly used to describe changes in yield or price on debt instruments such as mortgages and mortgage-backed securities.
  • Bond Market usually denotes the daily trading of thirty-year Treasury bonds. Lenders closely monitor this market because, as the bond yields fluctuate, fixed-rate mortgages tend to follow suit. The same factors that influence the Treasury Bond market affect mortgage rates concurrently. Hence, mortgage rates can change daily, and in a volatile market, they may also change within the day.
  • Bridge Loan is a short-term loan that allows a buyer to purchase a property and have time to rehabilitate or increase NOI before securing permanent financing. Alternatively, it enables the buyer to obtain financing to make a down payment and pay closing costs before selling their current property. Gap Financing is another term for a bridge loan.
  • Broker may refer to an agent who works under a broker, a broker who brokers loans to larger lenders or investors, or anyone who serves as an agent and connects two parties for any transaction, earning a fee for doing so.
  • Buydown a fixed rate mortgage where the interest rate is temporarily lowered for a period of one to three years by paying a lump sum held in an account to supplement the borrower's monthly payment. The funds may come from the seller or lender, and the note rate on the loan will be higher than the current market rate. This may help the borrower qualify for a higher loan amount or lower payments at the start.

  • Call Option similar to the acceleration clause, which allows the lender to call the entire loan balance due if certain conditions are not met by the borrower.

  • Cap fluctuating interest rates on Adjustable Rate Mortgages (ARMs) are usually limited by a certain amount, known as a "cap." This can apply to how much the loan may adjust over a six-month or annual period, as well as over the life of the loan. Some ARMs allow interest rates to fluctuate freely but require a minimum payment that can change annually, with a limit on how much the payment can increase each year.

  • Capital Reserves Expenditure a major improvement that will have a useful life of more than one year. Capital expenditures are generally depreciated over their useful life, while operational repairs are subtracted from income during the year they are made.

  • Capitalization the conversion of a future net income stream into present value using a specified desired rate of earnings as a discount rate. The capitalization rate is divided into the expected periodic income to derive a capital value for the expected income.

  • Capitalization Rate (Cap Rate) the rate of return on net operating income that is considered acceptable for an investor. It is used to derive the capital value of an income stream, with the formula value = annual income divided by the capitalization rate.

  • Carve-outs are specific items that the lender may require the borrower to personally guarantee for the duration of the loan. These items usually include environmental issues, fraud, misappropriation of funds, and theft.

  • Cash-out refinance is when a borrower refinances their mortgage for a higher amount than the current loan balance with the intention of withdrawing money for personal use.

  • Chain of title is an analysis of the transfers of title to a property over the years.

  • Clear title refers to a title that is free of liens or legal questions regarding the ownership of the property.

  • Closing has different meanings in different states. In some states, a real estate transaction is not considered "closed" until the documents have been recorded at the local recorder's office. In others, the "closing" is a meeting where all the documents are signed and money changes hands.

  • Closing has different meanings in different states. In some states, a real estate transaction is not considered "closed" until the documents have been recorded at the local recorder's office. In others, the "closing" is a meeting where all the documents are signed and money changes hands.

  • Closing costs refer to various fees and expenses payable by both the seller and the buyer at the time of a real estate closing. These costs may include brokerage commissions, lender fees, title insurance, recording fees, prepayment penalty, inspection and appraisal fees, and attorney fees.

  • Closing statement is also known as a settlement statement and summarizes the financial transactions of a real estate closing.

  • Cloud on title refers to any conditions revealed by a title search that adversely affect the title to real estate. Usually, clouds on title cannot be removed except by a deed, release, or court action.

  • Co-borrower is an additional individual who is both obligated on the loan and on the title to the property.

  • Collateral - The property that a borrower pledges as security for a loan. In the case of a home loan, the property serves as the collateral, and the borrower may risk losing the property if the loan is not repaid according to the terms of the mortgage or deed of trust.

  • Collection - When a borrower falls behind on loan payments, the lender will contact them in an effort to bring the loan current. If the borrower continues to be delinquent, the loan may go to "collection," and the lender will take steps to recover the amount owed. This may include recording certain documents in case the lender needs to foreclose on the property.

  • Combined Loan-To-Value (CLTV) - A ratio used by lenders to determine the total amount of financing they are willing to provide for a real estate purchase or refinance. It is calculated as the combined amount of all secured loans (including any liens) divided by the estimated value of the property.

  • Commercial Bank - A financial institution that provides a range of financial services to consumers and businesses, including loans. Commercial banks may be members of the Federal Reserve System and are generally subject to more regulations than other types of banks.

  • Commission - A fee paid to a sales professional for their work in a real estate transaction. This may include Realtors, loan officers, title representatives, attorneys, escrow representatives, and representatives for pest companies, home warranty companies, home inspection companies, insurance agents, and more. Commissions are typically paid by the seller or buyer as part of the purchase transaction.

  • Commitment Fee - A fee charged by a lender to lock in specific loan terms at the time of commitment.

  • Commitment Letter - A formal notification from a lender to a borrower indicating that the borrower's loan application has been approved. The letter will include the specific terms and conditions of the prospective loan.

  • Common Area Assessments, also known as Homeowners Association Fees in some areas, are charges paid by individual unit owners in a condominium or planned unit development (PUD) to the Homeowners Association. These fees are typically used to maintain the property and common areas.

  • Common Area Maintenance refers to the operational expenses related to the maintenance of retail and office properties. Under a Triple-Net lease, tenants are required to reimburse landlords for their proportionate amount of this expense based on square footage.

  • Common Areas are the portions of a building, land, and amenities owned or managed by a planned unit development (PUD) or condominium project’s homeowners’ association or a cooperative project’s cooperative corporation. These areas are used by all unit owners who share in the common expenses of their operation and maintenance. Examples of common areas include swimming pools, tennis courts, recreational facilities, common corridors, parking areas, means of ingress and egress, among others.

  • Community Property refers to property acquired by a married couple during their marriage that is considered jointly owned in some states, particularly in the Southwest, except under special circumstances. This is a legacy of the Spanish and Mexican heritage of the area.

  • Comparable Sales are recent sales of similar properties in nearby areas used to determine the market value of a property. These sales are also referred to as "comps."

  • A Condominium is a type of real property ownership where all owners collectively own the property, common areas, and buildings, except for the interior of their individual units. Condominiums are often mistakenly referred to as a type of construction or development, but they actually refer to the type of ownership.

  • Condominium Conversion involves changing the ownership of an existing building, usually a rental project, to the condominium form of ownership.

  • Condominium Hotels are becoming increasingly popular in holiday destinations such as Hawaii. These individual residences provide the same services one would expect from a regular hotel - rental/registration desks, short-term occupancy, food & telephone services, and daily housekeeping.

  • Conduit: An entity that issues mortgage-backed securities using loans originated by other lenders.

  • Constant: The percentage of the original loan paid in equal annual payments that provides principal reduction and interest payments over the life of the loan.

  • Construction Loan: A short-term, interim loan for financing the cost of construction. The lender advances funds to the builder at periodic intervals as work progresses. Typically, a recourse loan to the borrower.

  • Consumer Price Index: One of the most widely known measures of price levels and inflation reported to the US government. It measures and compares the total cost of a statistically determined "typical market basket" of goods and services consumed by US households on a monthly basis.

  • Contingency: A condition that must be met before a contract becomes legally binding. It has become standard for to include a contingency in their purchase contracts. This requires them to have an inspection report from a certified expert before the sale can be completed. It is a good way of ensuring that any potential issues with the property are addressed beforehand.

  • Contract: An oral or written agreement to do or not to do a certain thing.

  • Cooperative (Co-op): A type of multiple ownership in which the residents of a multiunit housing complex own shares in the cooperative corporation that owns the property, giving each resident the right to occupy a specific apartment or unit.

  • Correspondent: A specialized type of mortgage banker whose function is limited to the origination of mortgage loans that are sold to other mortgage bankers or investment bankers under a specific commitment.

  • Cost Approach: A method of appraising property based on the depreciated reproduction or replacement cost (new) of improvements, plus the market value of the site.

  • Cost of Funds Index (COFI): One of the indexes used to determine interest rate changes for certain adjustable-rate mortgages. It represents the weighted-average cost of savings, borrowings, and advances of financial institutions such as banks and savings & loans in the 11th District of the Federal Home Loan Bank.

  • Credit: A borrower can get something valuable by making a promise to pay back the lender at an agreed-upon future date. This contract is referred to as an agreement of debt. 

  • Credit History is a record that shows an individual's history of repaying debts. Mortgage lenders use credit histories as part of their underwriting process to determine credit risk.

  • Credit Rating is an evaluation of an individual's ability or history of repaying debts. It is generally available for individuals from local retail credit associations, while publicly held companies can obtain their ratings from firms such as Dunn & Bradstreet. Bonds are evaluated by firms such as Moody's, Standard & Poor's, and Fitch's.

  • Credit Report is a document that summarizes an individual's credit history. Credit bureaus prepare these reports, which lenders use to determine a loan applicant's creditworthiness.

  • Credit Repository is an organization that gathers, records, updates, and stores financial and public records information about the payment records of individuals who are being considered for credit.

  • Creditor is a person or entity to whom money is owed.

  • Cross-Collateralization is a financial strategy where net income shortfalls on one property are offset by excess cash flow from other properties in a pool of crossed loans. This strategy significantly enhances a transaction from the viewpoint of investors and rating agencies.

  • Current Yield is a measurement of investment returns based on the percentage relationship of annual cash income to the investment cost.

  • Debenture Bond is a long-term bond or note issued by governments and/or corporations that is not secured by a mortgage or lien on any specific property. The ability to repay the debt is based solely on the financial strength of the issuer since there is no specific property securing the debenture.

  • Debt is an amount owed to another.

  • Debt Service is the periodic payment necessary to pay the interest and principal on a loan, which is being amortized over a longer term (usually 25-30 years).

  • Debt Service Cover Ratio (DSCR) is the relationship between the annual net operating income (NOI) of a property and the annual debt service of the mortgage loan on the property. Both lenders and investors calculate this ratio to determine the likelihood of the property generating enough income to pay the mortgage payments. From the lender’s viewpoint, the higher the ratio, the better.

  • Deed: A deed is the legal document that documents the transfer of ownership of a property from one person to another. A Deed of Trust is similar to a mortgage, but it involves three parties instead of two.The parties involved in a mortgage are the borrower (known as the "Trustor"), lender (called the "Beneficiary"), and a third party (the “Trustee”) who holds the title for the lender's benefit. In certain states, such as California, Deeds of Trust replace Mortgages.

  • Deed-In-Lieu: To save the borrower from the possibility of foreclosure, a process whereby they can give ownership of their property to the lender is available. The lender has the option to halt foreclosure proceedings if the borrower offers a Deed-In-Lieu as an alternative. If your mortgage payments are not made on time, this will be reflected on your credit report. Defaulting on your loan is a serious matter which can affect your chances of having another loan approved in the future. If a payment towards a first mortgage or trust deed is not made within 30 days of the due date, then the loan is considered to be in default.

  • Defeasance: A process where the lender replaces the cash flows of the original loan with actual Treasury Securities. The borrower pays the lender enough money to buy these securities, and the lender buys the right combination of bonds in the bond market. Once this is done, the property is released as collateral for the loan, and the Treasury Securities become the new collateral.

  • Delinquency: Failure to make mortgage payments when they are due. Even if the lender does not charge a late fee for a few days, the payment is still considered late, and the loan is delinquent. If a loan repayment isn't made within 30 days, most lenders will report the delinquency to at least one of the major credit bureaus.

  • Deposit: A sum of money given in advance of a larger amount expected in the future. In real estate, this is often referred to as an "earnest money deposit."

  • Depreciation: Depreciation is the decline in the worth of a property or asset over time. It's used to decrease taxable income and shows up as an expense on financial statements. It's the opposite of appreciation, which increases its value. Lenders will add back depreciation expense for Lenders take into consideration the income of self-employed borrowers when assessing their capacity to repay a loan. 

    Self-employed borrowers are now getting a break from lenders who are adding back the depreciation expenses to their income when calculating their eligibility for loan approval. This means that lenders will take into account the depreciation expense and count it as income which will make it easier for self-employed borrowers to qualify for loans. With this new development, self-employed borrowers can save time, energy and money when applying for loans.

  • Discount Rate: Banks borrowing from the Federal Reserve System incur a certain rate of interest. When the discount rate is hiked, it becomes difficult for banks to borrow money, and sends a sign that interest rates in general will rise. Compound interest rate is frequently used to convert expected future income into its present-day equivalent value. Hence, it’s an invaluable tool in finance and investing.

  • Down Payment: The portion of the purchase price of a property that the buyer pays in cash and does not finance with a mortgage.

  • Due-On-Sale Provision: Certain mortgages have a provision that allows lenders to call for the total payment of the loan if the mortgaged property is sold by the borrower.

  • Earnest Money Deposit: A deposit made by a prospective homebuyer to demonstrate their serious intention to buy the property.

  • Easement: The right of way that allows someone other than the property owner access to or over a property.

  • Effective Age: An appraiser’s estimation of the physical condition of a building, which may differ from its actual age.

  • Effective Gross Income (EGI): The income derived from an income-producing property, calculated as potential gross income minus vacancy and collection loss amounts.

  • Eminent Domain: The legal right of a government to take private property for public use, upon payment of its fair market value, as the basis for condemnation proceedings.

  • Encroachment: An improvement that illegally intrudes on another’s property.

  • Encumbrance: Any factor that affects or limits the fee simple title to a property, such as mortgages, leases, easements, or restrictions.

  • Equal Credit Opportunity Act (ECOA): Federal law enforces creditors to offer credit fairly, regardless of race, color, religion, origin or any other personal characteristics such as age, gender and marital status. It also prohibits lenders from discriminating applicants based on whether they receive public assistance or not.

  • Equity: An owner’s financial stake in a property, which is the difference between the fair market value of the property and the outstanding amount owed on its mortgage and other liens.

  • Equity Participation: The Lender’s right to a share in the gross profits, net profits, or net proceeds in the event of a property sale or refinance on which the Lender has provided a loan. Also known as an equity kicker.

  • Equity Participation: The Lender’s right to a share in the gross profits, net profits, or net proceeds in the event of a property sale or refinance on which the Lender has provided a loan. Also known as an equity kicker.

  • Escrow: An item of value, money, or documents held by a third party until the fulfillment of a condition, such as the earnest money deposit being held in escrow until the transaction is completed.

  • Escrow Account: After closing your purchase transaction, you may have an escrow or impound account with your lender. When your monthly payment is calculated, an additional amount for expenses such as property taxes and homeowner’s insurance is included. This extra money goes into your escrow or impound account and is used by your lender to pay these bills for you.

  • Escrow Analysis: Once a year, your lender will conduct an “escrow analysis” to ensure that they are collecting the correct amount of money for anticipated expenses.

  • Escrow Disbursements: The use of escrow funds to pay for property expenses, such as real estate taxes, hazard insurance, and mortgage insurance, as they become due.

  • Estate: The ownership interest of an individual in real and personal property at the time of death.

  • Estoppel Certificate: A document used by a tenant or borrower to certify that rental or mortgage payments are current and that the landlord or lender is in compliance with all lease or loan terms.

  • Eviction: The legal removal of an occupant from a property.

  • Examination of Title: A report on a property’s title from public records or an abstract.

  • Exclusive Listing: A written contract that grants a real estate agent the exclusive right to sell a property for a specified period.

  • Executor: A person named in a will to administer an estate, or an administrator appointed by the court if no executor is named.

  • Expense Ratio: A comparison of operating expenses to potential gross income, used to evaluate a property’s operating efficiency.

  • Fair Credit Reporting Act: A consumer protection law that regulates the disclosure of credit reports and establishes procedures for correcting errors.

  • Fair Market Value: The price at which a willing buyer and seller agree on a sale, when both parties are acting prudently, knowledgeably, and without pressure.

  • Fannie Mae: The Federal National Mortgage Association, a congressionally chartered company that provides home mortgage funds.

  • Fee Simple investing in property is one of the most lucrative and rewarding forms of investment. Owners of condominiums have exclusive rights to the air space within their units, as well as perpetual ownership of land and other shared parts of their property. This is an unlimited and unrestricted form of inheritance that carries on forever.

  • Firm Commitment is an agreement made by a lender to provide a loan to a specific borrower for a particular property.

  • First Mortgage is a lien on a property where the lender's claims have priority over any subsequent lenders. While some lenders only offer first mortgages due to regulatory requirements, others limit mortgages to these senior instruments because of company policy.

  • Fixed Expenses are costs that are not affected by the occupancy of a property, such as property taxes, license fees, and property insurance. Along with operating expenses, fixed expenses are subtracted from effective gross income to determine the net operating income of the property.

  • Fixed-Rate Mortgage is a mortgage where the interest rate remains constant throughout the entire loan term.

  • Fixture is personal property that becomes real property when permanently attached to real estate.

  • Flood Insurance Flood insurance is an essential form of protection against any damage resulting from flooding. It covers physical property losses and should be acquired by homeowners & business owners in regions with high-risk of flooding, as specified by Federal regulations.

  • Foreclosure is what happens when a borrower who has defaulted on their mortgage loan loses their interest in the mortgaged property. The real estate is then sold at public auction to help repay the unpaid mortgage, usually done under duress.

  • Forward Commitment a permanent lender and an interim lender often enter into an agreement known as a replacement loan. This essentially guarantees that when certain conditions have been fulfilled, the construction loan will be replaced by a commitment from the permanent lender.

  • Fully Amortized Mortgage Loan is a loan that is fully paid off at maturity through periodic reductions of the principal. The first part of each monthly payment covers the interest on the outstanding debt as of the payment due date, while the remainder goes towards reducing the outstanding debt.

  • Grantee is the person who receives an interest in real property that has been conveyed to them.

  • Gross lease a triple net lease is an arrangement in which the tenant (lessee) agrees to pay all of the property-related expenses such as taxes, insurance, utilities, and repairs. The landlord (lessor) has no financial obligation other than collecting rent. This type of agreement is becoming increasingly popular as it simplifies both sides' responsibilities.

  • Hazard insurance is a type of insurance policy that covers damage to a property caused by specific hazards, such as fire, wind, or vandalism.

  • Hedging refers to the practice of purchasing or selling mortgage future contracts by mortgage bankers or lenders to protect cash transactions that are scheduled to take place at a future date.

  • Homeowners' association (HOA) is a non-profit organization that manages the common areas of a planned unit development (PUD) or condominium project. In a condominium project, the HOA does not have ownership interest in the common elements, while in a PUD project, it holds title to the common elements.

  • HUD median income is the median family income for a particular county or metropolitan statistical area (MSA) as estimated by the Department of Housing and Urban Development (HUD).

  • HUD-1 settlement statement is an important document that provides a comprehensive itemization of all the funds exchanged at the closing of a real estate transaction. This statement helps buyers and sellers understand their respective financial obligations and commitments, ensuring that all parties involved are aware of the exact costs and fees associated with the transaction. The HUD-1 settlement statement is an essential tool for real estate professionals, helping to ensure accuracy and transparency in real estate transactions. 

    HUD-1 settlement statement is a document that provides an itemized listing of the funds paid at the closing of a real estate transaction.

  • Income Approach: A property appraisal method that determines the fair market value of a property by evaluating its expected future income. This is done by dividing the net income by the estimated capitalization rate.

  • Indexes are crucial to financial institutions when assessing the interest rate for mortgages, as well as in gauging the return from investments. Commonly used indexes include the prime rate, LIBOR, T-Bill rate and 11th District COF. These released rates help to determine monetary benchmarks.

  • Ingress and Egress: A term used in easements, which grants the right to enter and exit a property but not the right to park on it.

  • Interim Financing: A type of loan, including construction loans, that is used when the property owner is unable or unwilling to arrange permanent financing. Interim financing is generally arranged for less than 3 years and is used to allow time for operations or market conditions to improve.

  • Internal Rate of Return (IRR): The actual annual rate of return on an investment. The IRR considers the application of compound interest factors and requires a trial-and-error method for solution.

  • Joint Tenancy: A form of property ownership in which each party owns the entire property, and the ownership is not separate. If one party dies, the survivor owns the property in its entirety.

  • oint Venture (JV): Two or more parties can come together to collaborate on an undertaking by signing a binding agreement. This mutual understanding guarantees that all parties involved will fulfill their duties in completing the project. Joint ventures are used in real estate development to raise capital and spread risk. Essentially, a joint venture is similar to a general partnership, but it ceases to exist once its purpose has been accomplished.

  • Judgment can be a verdict to require a debtor to repay the debt. As collateral, it is even possible for a lien to be placed against their real estate. An alternate spelling of 'judgment' is 'judgement'.

  • Liquidated Damages
A specific amount of money agreed upon in a contract to be paid as compensation in case of a breach of contract by one party. The purpose of liquidated damages is to provide certainty and avoid lengthy legal disputes over damages.

  • Loan-to-Value Ratio (LTV) is a tool used to measure the risk level associated with a loan or mortgage. This ratio shows the amount of the loan compared to either an appraisal value or sales price, whichever is lower. It's an integral factor for assessing risks related to financial transactions.

  • Lock-In
 an agreement in which a lender guarantees a borrower a specific interest rate for a certain period of time, usually until the loan is funded or closed.

  • Market Value
 The estimated price that a property would fetch in the open market under normal conditions, assuming a willing buyer and seller and a reasonable amount of time for the sale to take place.

  • Maturity
 The date when the principal amount of a loan is due and payable in full. This date is specified in the loan documents.

  • Mortgage is a financial agreement in which a lender provides capital to a borrower for the purchase of real estate. The property is then used as collateral for the loan, and the borrower must make payments until it is fully paid off.

  • Mortgage Broker 
An intermediary who brings borrowers and lenders together for the purpose of originating mortgage loans. Mortgage brokers do not actually make loans themselves, but instead work with a variety of lenders to find the best mortgage loan options for their clients.

  • Mortgage Insurance is a type of insurance that protects lenders in the event that a borrower defaults on their mortgage loan. This insurance is commonly required for loans with a high loan-to-value ratio and helps to cover any losses suffered by the lender.

  • Net Operating Income (NOI)
The income generated by a property after deducting all operating expenses but before deducting any debt service. NOI is an important factor in determining the value of an income-producing property.

  • No Cash-Out Refinance: This type of refinancing transaction is not designed to provide funds to the borrower. Instead, the new mortgage balance is calculated to cover the outstanding balance on the existing loan and any expenses incurred in securing the new mortgage. It is sometimes referred to as a "rate and term refinance."

  • No-Cost Loan: "No cost" loans are widely advertised by lenders, but it's important to clarify what that term really means. Does it cover just the lender fees or also other costs associated with a purchase/refinance? Ask your lender to explain all the details before applying for any loan. Essential expenses like title insurance, escrow fees, settlement fees, appraisal charges & recording fees have to be taken care of notary fees, and so on. Note that the interest rate on such loans is typically higher than on loans with associated costs.
  • Non-Recourse Loan
 A type of loan in which the borrower is not personally liable for the repayment of the loan. In the event of default, the lender’s only recourse is to seize and sell the collateral.

  • Open-End Mortgage 
A mortgage that allows the borrower to borrow additional funds in the future without having to refinance the mortgage. The additional funds are added to the existing mortgage balance.

  • Operating Expenses
 The costs associated with operating and maintaining a property, including property taxes, insurance, utilities, repairs and maintenance, and management fees.

  • Option A is a contractual agreement providing the holder with the ability, but not the requirement, to buy or sell an asset at a set price within a predetermined timeframe.

  • Origination Fee
 As part of their loan processing procedure, lenders often charge an origination fee which is a certain percentage of the loan amount. This fee helps cover the expenses associated with assessing and approving the loan application.

  • Owner Financing
 A financing arrangement in which the seller of a property agrees to provide financing to the buyer. The seller acts as the lender and the buyer makes payments directly to the seller.

  • Ownership
 The legal right to possess, use, and dispose of property. Ownership can be held by individuals, corporations, partnerships, or other entities.

  • Lender Points: Charges assessed by the lender at closing, equal to 1% of the loan amount, designed to reduce the interest rate on the mortgage loan. Also known as "discount points."

  • Line of Credit is an agreement between a borrower and a bank or finance provider, where the latter agrees to provide the former with limited funds in order to meet their financial needs. This amount can be used anytime within the specified duration.

  • Liquid Assets Liquid Assets refer to cash assets or assets that can be easily converted into cash.

  • Loan A Loan is a sum of money borrowed by an individual or an entity that is typically repaid with interest.

  • Loan Application Fee A Loan Application Fee is a charge required by a lender or loan originator that must be paid by the borrower to cover the cost of internal resources, personnel, and other incidental expenses associated with processing and underwriting the loan. This fee is generally non-refundable.

  • Loan Officer A Loan Officer, also known as a lender, loan representative, loan "rep," account executive, or other similar titles, serves several functions and has various responsibilities. Loan officers are essential for those looking to apply for a loan. They act as the liaison between borrowers and lenders, negotiating with both parties and ensuring that all necessary conditions are fulfilled. They help make the entire loan process smoother, saving everyone time and effort.

  • Loan Servicing Loan Servicing refers to the process of managing a loan after it has been obtained. The company that receives loan payments processes them, sends statements, manages the escrow/impound account, provides collection efforts on delinquent loans, ensures that insurance and property taxes are paid, handles pay-offs and assumptions, and provides a variety of other services.

  • Loan-To-Cost Ratio (LTC) Loan-To-Cost Ratio (LTC) refers to the amount of money borrowed compared to the cost of the project, including acquisition, construction, renovation, etc.

  • Loan-To-Value (LTV) Ratio is the percentage of money borrowed when compared to the price of a given property. It's usually determined by taking the lesser value between what was appraised or sold for.

  • Lock-Box A Lock-Box With the lock-box mechanism, a trust or servitor receives the rental income and pays any expenses associated with it, making sure to send the loan payments before releasing extra cash to the borrower. This removes any discretion from the borrower's side and puts more control in their hands.

  • Lock-In-Period A lock-in-period is the period of time for which a lender has promised to keep an interest rate unchanged for a borrower. During this time, the borrower's loan remains secure and protected from fluctuations in the market.

  • Locked-In Interest Rate is the predetermined interest rate offered by a lender when you agree to take out a loan. This rate remains fixed for the duration of the loan and provides security to both parties involved in the agreement. Income property loans typically involve a lock-in period in which applicants must pay a commitment or rate lock fee to guarantee their interest rate for the duration of the agreement. This payment is necessary to guarantee their preferred rate of borrowing, and should be taken into account during the loan application process.

  • London Interbank Offered Rate (LIBOR) LIBOR (London Interbank Offered Rate) is the rate of interest that big banks around the globe charge each other for large loans denominated in Eurodollars.Many domestic banks and other loan providers measure their adjustable rate mortgages against the LIBOR rate. This average is drawn from five major banks - Bank of America, Barclays, Bank of Tokyo, Deutsche Bank & Swiss Bank. This figure can be seen in the Wall Street Journal.

  • Management Fee A Management Fee is the amount charged by an independent company for the day-to-day management of a property. This fee is typically based on a percentage of the property's income.

  • Margin Margin refers to the difference between the interest rate and the index on an adjustable rate mortgage. No matter how long you take to repay the loan, the margin stays fixed. However, the index can fluctuate upwards or downwards throughout this duration.

  • Market Rent refers to the amount of rental income that a property can potentially generate in the current market conditions. This is also known as economic rent, and may vary from the actual rent being charged under the terms of the lease.

  • Maturity is the date on which the principal balance of a loan, bond, or other financial instrument becomes due and payable.

  • Member, Appraisal Institute (MAI) is an accredited third-party appraiser and a member of the American Institute of Real Estate Appraisers.

  • Merged Credit Report is a credit report that combines the raw data from two or more major credit repositories. This is different from a Residential Mortgage Credit Report (RMCR) or a standard credit report.

  • Mezzanine Loan is a second mortgage that typically carries a higher interest rate than secured loans. It may also give the lender a stake in the equity of the property.

  • Mixed-Use Commercial Project is a real estate development that includes two or more different uses, intended to be harmonious and complementary. For instance, a high-rise building may have retail shops on the first two floors, office space on floors three through ten, apartments on the next ten floors, and a restaurant on the top floor.

  • Modification refers to the changes made to the terms of a mortgage without requiring the borrower to refinance.

  • Mortgage A First Trust Deed is a legal contract guaranteeing property as repayment for a debt. As an alternative to mortgages, some states use these Trust Deeds instead.

  • Mortgage Bankers play a vital role in facilitating the loan process, as they are the linking bridge between borrowers and lenders. They also take on more responsibilities such as creating loan packages, selling them to first-time or secondary investors, managing debt services, paying property taxes, and dealing with delinquent accounts. Mortgage bankers are typically paid a commission based on the amount owed to an investor for their management services. In many cases, loan origination or finder's fees charged to borrowers can be offset by lower interest rates from lenders that the borrower wouldn’t have access to otherwise.

  • Mortgage Broker is a person who connects borrowers with lenders and receives a finder's fee in return. This fee is usually equal to one percent of the amount borrowed and is paid by the borrower. Some sources of funds, such as insurance companies, work through mortgage brokers rather than dealing directly with borrowers. Mortgage brokers are not typically involved in servicing the loan once it is made and the transaction is closed.

  • Mortgage Constant: The ratio between annual mortgage loan payments and the initial mortgage loan principal, expressed as a decimal or percentage, for level-payment mortgage loans. It is used to convert debt service into mortgage loan value.

  • Mortgage Correspondent: An authorized representative of a financial institution who places loans in a particular geographic area.

  • Mortgage Securities Pool: A method of issuing securities in the financial market for investment purposes, backed by the value of specific real estate mortgages. Mortgage-backed securities have become more popular due to their increased marketability, and they often come with a lower interest rate than for unsecured debts. This makes them an attractive option for those looking to secure their investments.

  • Mortgage-Backed Securities: Securities that are backed by mortgages and purchased by investors. Also known as pass-through securities, as the debt service paid by the borrower is passed through to the purchaser of the security.

  • Mortgagee: The lender in a mortgage agreement.

  • Mortgagor: The borrower in a mortgage agreement.

  • Multidwelling Units: Properties that offer separate housing units for more than one family, but secure only a single mortgage.

  • Negative Amortization: A feature of some adjustable rate mortgages that allows the interest rate to fluctuate independently of a required minimum payment. If the borrower makes only the minimum payment, it may not cover all of the interest due at the current rate, resulting in deferred interest. The deferred interest is added to the loan balance, causing negative amortization.

  • Net Leasable Area: The floor space that may be rented to tenants in a building, or the area on which rental payments are based. Generally, it excludes common areas and space devoted to heating, cooling, and other building equipment.

  • Net Lease: A net lease is a type of agreement where the tenant pays the landlord rent plus additional expenses such as taxes, insurance and upkeep costs. This means that in these cases, the landlord's rental income will be "net" of any extra expenses.

  • Net Operating Income (NOI): The income from a property after deducting all operating expenses and reserves, except for income taxes and financing expenses (interest and principal payments).

  • No Cash-Out Refinance: This type of refinancing transaction is not designed to provide funds to the borrower. Instead, the new mortgage balance is calculated to cover the outstanding balance on the existing loan and any expenses incurred in securing the new mortgage. It is sometimes referred to as a "rate and term refinance."
  • No-Cost Loan: "No cost" loans are widely advertised by lenders, but it's important to clarify what that term really means. Does it cover just the lender fees or also other costs associated with a purchase/refinance? Ask your lender to explain all the details before applying for any loan. Essential expenses like title insurance, escrow fees, settlement fees, appraisal charges & recording fees have to be taken care of notary fees, and so on. Note that the interest rate on such loans is typically higher than on loans with associated costs.
  • Nonconforming Use: This refers to a land use that violates zoning regulations or codes, but is allowed to continue because it predates the zoning restriction.
  • Note: A legal document that commits a borrower to repay a mortgage loan at a specified interest rate over a defined period.
  • Note Rate: The interest rate specified on a mortgage note.
  • Notice of Default: A formal written notice sent to a borrower informing them that they are in default on their loan and that legal action may be taken. 
  • Original Principal Balance: The total amount of principal owed on a mortgage before any payments have been made.
  • Origination Fee is a fee charged to a borrower by a lender to process a loan. On a government loan, this fee is typically one percent of the loan amount, but additional charges may be applied, known as "discount points". Each point is equal to one percent of the loan amount. On commercial loans, the origination fee refers to the total number of points a borrower pays.
  • Owner Financing is a property purchase transaction in which the seller provides financing for all or part of the purchase price.
  • Partial Payment is a payment made by a borrower that is less than the scheduled monthly payment on a mortgage loan. Generally, lenders do not accept partial payments, but in times of financial hardship, borrowers can make this request to the loan servicing collection department.
  • Payment Change Date is the date when a new monthly payment amount takes effect on an adjustable-rate mortgage (ARM) or a graduated-payment mortgage (GPM). Typically, this occurs in the month following the interest rate adjustment date.
  • Permanent Financing is a long-term mortgage loan that covers development costs, interim loans, construction loans, financing expenses, marketing, administration, legal, and other costs. This loan differs from a construction loan in that the financing is put into place after the project is constructed and open for occupancy. The loan is a long-term obligation, generally for a period of 10 years or more.
  • Personal Property refers to any property that is not real property. This can include items such as cars, furniture, and other movable assets.
  • Phase I Environmental Report is a comprehensive report required by most lenders and produced by an independent company that details the current environmental condition of a property. The report typically requires a historical review of the property's previous uses and may also require an operations and maintenance (O&M) plan for the future removal of asbestos and other harmful items.
  • Pre-Approval: The process of determining how much money a borrower is eligible to borrow before they apply for a loan, including a credit check and verification of employment, income, and assets.

  • Prepaid Expenses: Payments made in advance of their due date, such as prepaid interest, property taxes, and hazard insurance premiums, typically collected at closing.

  • Prepayment: The payment of all or part of a mortgage loan before the scheduled due date.

  • Prepayment Penalty: A prepayment penalty is often applied to commercial or investment real estate mortgages in some instances, but it is usually not allowed on traditional home loans. This fee is typically charged to borrowers who choose to pay off their mortgage loan ahead of schedule.

  • Prime Rate: The interest rate that banks charge their most creditworthy customers for short-term loans.

  • Principal: The amount of money borrowed to purchase a property or the remaining balance of a mortgage loan, not including interest.

  • Private Mortgage Insurance (PMI): Insurance required on most loans with a loan-to-value ratio greater than 80%, protecting the lender in case of borrower default. The cost of PMI is typically added to the monthly mortgage payment.

  • Property Tax: Taxes charged by local governments on real estate based on the assessed value of the property, used to fund local services and infrastructure.

  • PUD (Planned Unit Development): A type of development where individual owners own their homes and land, but common areas are owned and maintained by a homeowners’ association for the benefit of all owners.

  • Purchase Agreement: A written contract between a buyer and seller stating the terms and conditions of the sale of a property.

  • Qualifying Ratio: A percentage used by lenders to determine how much money a borrower is eligible to borrow based on their monthly income and debts.

  • Rate Cap: The maximum amount the interest rate on an adjustable-rate mortgage (ARM) can increase or decrease over the life of the loan, expressed as a percentage.

  • Real Estate: Refers to land and any structures or natural resources that are permanently attached to it, such as buildings, trees, minerals, and water rights. The ownership of real estate extends from the ground below to the airspace above it, including any rights to natural resources found within it.
  • Real Estate Agent: A licensed professional who assists buyers and sellers in the purchase or sale of real estate.

  • Recording: The act of filing a document with the appropriate government agency to make it part of the public record.

  • Refinancing: Refinancing your mortgage loan is a great way to potentially save money on your monthly payments or make other changes to improve your current loan situation. Homeowners can have a chance to benefit from refinancing if they can secure a lower interest, reduce their repayment term, or switch from an adjustable-rate mortgage (ARM) to fixed-rate mortgage by taking out a new loan. This process of refinancing replaces the existing loan.

  • Rehabilitation Loan: A mortgage loan used to finance the purchase and renovation of a property, based on the projected value of the property after the renovation is complete.

  • Reserves: Funds set aside by the borrower at closing to cover future expenses such as property taxes, hazard insurance premiums, and mortgage insurance premiums, typically expressed as a certain number of months' worth of mortgage payments.

  • RESPA (Real Estate Settlement Procedures Act): A federal law regulating the disclosure of settlement costs in real estate.

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