Interest rate risk refers to the potential variability in investment returns due to changes in interest rates. This risk can profoundly impact the market value of real estate investments and mortgage-backed securities.
Limited liability refers to the restriction of an individual's potential losses to the amount they have invested in a particular asset or business. This concept limits their personal liability and prevents them from losing more than their initial investment, provided they do not otherwise agree to assume additional liability.
The Loan-to-Value (LTV) ratio is a critical financial metric in real estate and lending that compares the loan amount to the appraised value of the property, influencing mortgage terms, interest rates, and approval processes.
Systemic risk refers to the potential for a major disruption in the function of an entire market or financial system, as opposed to just one or a few individual entities. It cannot be mitigated by diversification and is also known as market risk.
A tranche refers to a piece, portion, or slice of a deal or structured financing. Each tranche offers a different risk-reward ratio to suit different investor appetites.
