Add-on interest refers to an interest amount that is calculated at the start of the loan term and then added to the loan principal, resulting in equal installment payments over the entire loan period. This method typically results in a higher cost of borrowing compared to other interest calculation methods.
The Annual Percentage Rate (APR) is the effective annual rate of interest for a loan, taking into account fees and other associated costs, disclosed as required by the Truth-in-Lending Act.
An Asset-Backed Security (ABS) is a financial instrument that is backed by a pool of assets such as mortgages, loans, or receivables. These securities are often enhanced through credit enhancements like bank letters of credit or insurance, which improve their credit quality.
A financial institution that accepts deposits, offers checking and savings account services, and loans to individuals and businesses. Banks also provide various financial services like wealth management, currency exchange, and safe deposit boxes.
In real estate, collateral refers to property or assets that a borrower offers to a lender as security for a loan. It reduces the lender’s risk by providing a way to recoup the loan amount if the borrower defaults.
Collateralized Debt Obligation (CDO) is a complex financial product that is structured and sold to investors, leveraging various types of debt instruments like bonds, mortgages, and loans as collateral.
A commercial bank is a financial institution that offers a broad range of financial services such as business loans, consumer loans, checking and savings accounts, and credit cards. Most deposits at these banks are insured by the Federal Deposit Insurance Corporation (FDIC).
Credit in real estate finance pertains to the availability of borrowed money and the trust extended by lenders to borrowers. It also includes accounting implications, reflecting liabilities or equity on the right side of the ledger.
Credit history refers to an individual's past behavior involving the taking out and repayment of loans and the use of revolving credit, such as credit cards. Credit histories are recorded by national credit reporting companies who issue credit reports. These reports are used by lenders to assess an applicant’s creditworthiness.
A credit limit represents the maximum amount a financial institution extends as a loan or line of credit to an individual or business based on their creditworthiness and financial background.
A creditor is an entity or person to whom money is owed by a debtor. In a strict legal sense, a creditor is one who extends credit to another for money or other property. More generally, a creditor is someone who has a legal right to demand and recover from another entity a sum of money on any account.
The Debt Service Constant, also known as the Mortgage Constant, is a measure used in real estate finance to determine the annual debt service (principal and interest payments) payment required per dollar of the loan amount.
The Effective Interest Rate (EIR) represents the true rate of return on a loan or investment, factoring in all associated financing expenses beyond the nominal interest rate.
An equity kicker, also known simply as “kicker,” is a form of equity participation that lenders or investors can demand as part of a loan agreement. It provides the lender the right to share in the future success of the borrowing venture, typically in the form of a percentage of ownership or profits.
Equity stripping involves reducing the equity in a property through refinancing or obtaining additional loans, typically used as a tactic to avoid asset seizure in cases of financial distress or by predatory lenders.
Federal Land Banks are specialized, government-sponsored lenders under the Federal Farm Credit System that provide loans for purchasing, refinancing, and renovating rural real estate, aiming to alleviate the shortage of real estate credit in non-urban areas.
A finance charge is an interest or a certain other fees charged to a credit customer. It is a cost imposed for borrowing or the service of advancing credit.
A financial institution is a company whose 'product' involves money, such as making loans, investments, and accepting deposits. These institutions are fundamental to the functioning of the financial system and economy.
A Financial Intermediary is an institution that acts as a middleman between savers and borrowers, collecting deposits and channeling them into investments such as loans and securities.
Financing is the process of borrowing money to purchase property. Various methods exist to acquire the necessary funds, which can involve different types of loans and arrangements.
A floating rate is an interest rate on a loan, bond, or other fixed-income security that fluctuates over time according to a specific benchmark or index. This rate is not fixed and can change throughout the term of the financial instrument.
The Initial Rate Period is the timeframe in an Adjustable-Rate Mortgage (ARM) during which the initial interest rate is fixed. This period lasts until the first scheduled adjustment, after which the interest rate is recalibrated according to the underlying index.
An insured mortgage is a type of home loan that is backed by either private mortgage insurance or government mortgage insurance programs to protect lenders against borrower default.
A lender is a party that originates or holds loans. They can include entities such as commercial banks, thrifts, credit unions, mortgage bankers, and mortgage brokers.
Outstanding balance is the amount currently owed on a debt after accounting for payments already made toward the principal and interest. It is a key figure in managing financing and understanding one’s debt obligations.
Prepayment Privilege refers to the right of a borrower to retire a loan before its maturity date without incurring any prepayment penalty. This feature provides borrowers with the flexibility to pay off loans faster, potentially saving on interest costs over the life of the loan.
Prepayment risk is the probability that a fixed-income security will be retired before its term ends, typically caused by a borrower's provision to prepay the loan balance at any time without penalty, impacting the expected returns for investors.
The rate of interest, also known as the interest rate, is the proportion of a loan that is charged as interest to the borrower. It is a crucial factor in real estate financing and investment.
The remaining balance, also referred to as the outstanding balance, is the amount of loan principal that has not yet been repaid, plus any accrued interest or fees.
