An additional principal payment is a voluntary payment in addition to the established payment amount, applied directly against the loan principal. It helps in shortening the length of the loan term and reducing overall interest costs.
An adjustable-rate mortgage (ARM) is a type of mortgage in which the interest rate applied on the outstanding balance varies throughout the life of the loan. The rate is initially fixed for a specific period, after which it resets periodically, typically annually, based on an index that reflects the cost to the lender of borrowing on the credit markets.
Amortization refers to the process of paying off debt over a specific period of time through regular payments of principal and interest, ultimately resulting in the full repayment of the loan by the end of the term.
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.
An Assumable Loan is a type of mortgage loan that allows a new purchaser to undertake the existing loan's obligation without changing its terms. This process bypasses the need for obtaining a new mortgage arrangement.
The Banker's Year is a convention that standardizes the length of a month at 30 days and of a year at 360 days for ease of financial calculations, simplifying the handling of interest and other financial computations.
CAP in adjustable rate mortgages (ARMs) refers to a limit placed on adjustments to protect the borrower from large increases in the interest rate or the payment level. There are different types of caps, including annual caps, lifetime caps (life-of-loan caps), and payment caps. This measure helps borrowers by providing predictability and stability in their mortgage payments.
Capital improvements, also referred to as capital expenditures, are significant upgrades, enhancements, or additions to an existing property that increase its overall value, extend its useful life, or adapt it to new uses.
A capital reserve is a fund created to finance major, long-term investments, property or infrastructure enhancements within a real estate property. These are set aside from profits and retained earnings specifically for future large scale repairs, renovations, or unexpected large expenses.
Capitalizing in real estate is the process of estimating the present value of an income stream, setting up the cost of an asset on financial records, or supplying a business with capital.
A Cash-Out Refinance allows homeowners to replace their existing mortgage with a new, larger loan, providing them with the difference in cash.
A Certificate of Satisfaction is a legal document that indicates the fulfillment of the terms and obligations under a lien, mortgage, or loan agreement. It is often required to clear any encumbrances against a property, signifying that the associated debt or obligation has been satisfied in full.
A closing statement is an accounting of funds from a real estate sale, made to both the seller and the buyer separately. It details the financial transactions involved in finalizing a real estate transfer.
A CMO REIT is a type of Real Estate Investment Trust (REIT) that primarily invests in Collateralized Mortgage Obligations (CMOs), deriving its cash flow from interest and principal receipts on these securities.
Commercial Mortgage-Backed Securities (CMBS) are a type of mortgage-backed security that is secured by mortgages on commercial properties rather than residential real estate.
The Commercial Real Estate Financial Council (CREFC) is an organization of professionals involved in commercial real estate finance that holds conferences, publishes newsletters, and provides advocacy for the industry.
A conditional commitment is an agreement by a lender to provide a loan to a qualified borrower, subject to specific conditions that must be met. It serves as a binding commitment from the lender, provided that all pre-stipulated criteria and terms are satisfied.
Exploring how consignment functions within the real estate finance domain, particularly focusing on the FSLIC's role in replacing management in insolvent savings and loan associations to ensure continued operations.
Consulting in real estate involves providing expert advice, information, analysis, and recommendations to aid in making informed real estate decisions.
The contract interest rate, also known as the face interest rate, is the interest rate specified in a loan agreement or mortgage note. This rate is used to calculate the periodic interest payments owed by the borrower throughout the loan term.
A Convertible ARM is an Adjustable Rate Mortgage (ARM) that gives the borrower the ability to change the payment schedule to a fixed-rate at specific points during the loan term, commonly for a nominal fee, with an interest rate determined by the original loan agreement.
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.
The Debt Coverage Ratio (DCR) is a key metric used in real estate to assess the ability of an income-producing property to cover its annual debt payments. It helps lenders and investors evaluate the risk associated with a property loan.
The Debt Coverage Ratio (DCR) is a financial metric that measures the ability of a property to cover its operating expenses and debt obligations. It is widely used by lenders and investors in commercial real estate to assess the risk associated with a particular investment.
Debt service refers to the periodic payments, typically consisting of both principal and interest, made on a loan. It is a crucial concept in real estate finance and investment, as it impacts cash flow, profitability, and overall financial health of a property or investment.
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.
A Deed to Secure Debt is a type of mortgage used in many states where property is deeded to a lender to secure a debt, offering a streamlined foreclosure process.
In real estate, default refers to the failure to fulfill an obligation or promise, or to perform specified actions as agreed upon in a contract. This term is frequently used in scenarios involving mortgages or leases where the borrower or tenant fails to meet the terms agreed upon.
A default point in real estate refers to the critical juncture at which a borrower fails to meet their financial obligations, resulting in potential foreclosure or other legal actions. It is conceptually similar to the break-even point in financial analysis.
A Demand Loan is a type of loan that the lender can require to be repaid at any time, with often little to no advance warning to the borrower.
Direct capitalization is a valuation method used in real estate to estimate the value of an income-producing property by dividing the net operating income (NOI) by the capitalization rate (cap rate).
A discounted loan is a loan that is sold or traded for less than its face value due to market interest rate differences or inherent risk characteristics.
Discounting is the process of estimating the present value of an income stream by reducing expected cash flow to reflect the time value of money. It is the opposite of compounding, and mathematically, they are reciprocals.
A draw refers to the periodic advancement of funds from a construction lender to a developer according to a pre-arranged schedule, either at regular intervals during construction or after the completion of specific segments of the project.
Escalation clauses and escalation mortgages are tools commonly used in real estate to adjust costs and payments in accordance with specific metrics, such as inflation or interest rates, to accommodate changing economic conditions.
Founded in 1994, the European Real Estate Society (ERES) fosters a structured and permanent network that facilitates collaboration between real estate academics and professionals throughout Europe.
A policy of restraint in taking legal action to remedy a default or breach of contract, generally in the hope that the default will be cured, given additional time.
The Future Worth of One Per Period, also known as the Compound Amount of One Per Period, is a concept used in real estate finance and investment. It signifies the future value of a series of uniform periodic cash flows occurring at the end of each period when compounded at a certain interest rate.
A quasi-governmental organization that is privately owned but was created by the government and retains certain privileges not afforded to entirely private entities.
A form of insurance that provides protection against specific perils such as fires, storms, or other hazards, though it does not cover flood damage. It is often required by mortgage lenders to protect their financial interest in the property.
Launched in March 2009 by the Federal Housing Finance Agency, the Home Affordable Refinance Program (HARP) was designed to help underwater and near-underwater homeowners refinance their mortgages. Unlike the Home Affordable Modification Program (HAMP), which assists homeowners at risk of foreclosure, HARP targets homeowners who are current on mortgage payments but cannot refinance due to declining home prices.
The initial interest rate is the beginning rate applied to an adjustable-rate mortgage, typically set for an initial period before adjustments. It often acts as an introductory rate that may be lower than prevailing market rates.
Loan-to-Value Ratio (LTV) is a financial term used by lenders to express the ratio of a loan to the value of an asset purchased. The LTV ratio is crucial in assessing the risk of a loan.
In real estate and finance, a margin refers to the constant amount added to the value of the index to adjust the interest rate on an adjustable-rate mortgage (ARM). It is a critical component in determining the overall interest rate that a borrower will pay.
In the context of Real Estate, the term MBA can refer to the Mortgage Bankers Association (MBA) of America, a national association representing the real estate finance industry, or the Master of Business Administration degree, often pursued by professionals aspiring to leadership roles in real estate and other sectors.
The Mortgage Bankers Association (MBA) is a national association that represents the real estate finance industry. It provides a range of services including educational programs, professional certifications, advocacy, and research for mortgage bankers.
The Mortgage Constant is derived by dividing the total annual mortgage debt service, including both principal and interest, by the initial loan amount. It provides a useful way of calculating the annual cost of a loan as a percentage, making it easy to compare different mortgage options.
The mortgage constant is the percentage ratio between the annual debt service and the outstanding loan principal. It reflects both the interest and the amortization components of a loan and is used extensively in real estate to determine the annual loan payment.
A Mortgage Real Estate Investment Trust (mREIT) is a company that specializes in investing in mortgage obligations, typically providing financing for income-producing real estate by purchasing or originating mortgage loans and mortgage-backed securities.
Mortgage-Backed Bonds (MBBs) are a type of bond that is secured by a pool of mortgage loans, providing investors with regular interest payments derived from the underlying mortgage payments.
A mortgage-backed security (MBS) is a type of financial instrument that is secured by a pool of mortgage loans, offering investors income streams derived from these mortgages.
NAREIT is the preeminent organization that represents and advocates for real estate investment trusts (REITs) and publicly traded real estate companies in the United States. It plays a crucial role in education, advocacy, and research to promote the growth and understanding of REITs.
Paper credit is a term used in real estate to describe a written obligation given or received instead of cash. It often includes negotiable instruments such as promissory notes or bonds.
Partial Payment is a payment that is less than the required monthly mortgage payment. Normally, lenders do not accept partial payments, but a lender may make exceptions during times of difficulty.
A contractual limit on the percentage amount of adjustment allowed in the monthly payment for an adjustable-rate mortgage at any one adjustment period, which can lead to negative amortization if the payment does not cover the interest due.
PITI stands for Principal, Interest, Taxes, and Insurance, which are the components of a mortgage payment. Understanding PITI is crucial for homeowners and prospective buyers as it determines the total cost of owning a home.
The Present Value of One (PV1) calculates the current worth of a future amount, discounted at a specific interest rate. This concept is pivotal in finance and real estate for determining the value of future cash flows in today's terms.
Principal and Interest Payment (P&I) refers to a periodic payment, usually made monthly, that includes the interest charges for the period plus an amount applied to the amortization of the principal balance, commonly seen with amortizing loans.
Principal, Interest, Taxes, and Insurance (PITI) are the four components typically included in a single monthly mortgage payment on an amortizing loan.
In real estate, 'Rate' refers to the ratio of periodic income or change to the amount invested or initial amount. This metric is used in various contexts such as calculating interest on loans, investment returns, population growth, and occupancy in buildings.
The Real Estate Roundtable is an organization composed of leading owners, developers, and stakeholders in the real estate industry, focusing on legislative actions, policies, and government interventions affecting real estate finance, taxation, and investment.
The reinstatement period is a phase in the foreclosure process during which the homeowner has an opportunity to stop the foreclosure by paying the money that is owed to the lender.
REPO stands for reposition, and in the real estate context, it refers to the repossession of properties. It may also relate to the repurchase of notes, generally focusing on distressed assets.
A reserve fund is an account set aside to cover future building maintenance expenses, mortgage obligations, and other forthcoming financial requirements. These funds can be mandated by lenders, such as escrows, to ensure timely payments for property-related costs.
A situation in real estate where financial benefits from ownership accrue at a lower rate than the mortgage interest rate, leading to negative financial implications for the property owner.
A Renegotiated Rate Mortgage (RRM) allows borrowers to renegotiate the interest rate of their existing mortgage, often providing an opportunity to lower monthly payments and overall interest costs.
A self-amortizing mortgage, also known as a fully amortizing mortgage, is one that retires itself through regular principal and interest payments over the life of the loan. At the end of the term, the loan balance reaches zero, meaning it is completely paid off.
A specific lien is a claim on a specific piece of property used as collateral for a loan. This differs from a general lien, which is a claim on all assets of an individual.
A spreading agreement is a financial arrangement that extends collateral over multiple properties, often used to secure additional loans or consolidate existing loans.
A subordination clause is a legal arrangement that establishes the order of priority for multiple lenders' claims on a property in case of default.
A subprime loan is a type of loan offered to individuals with less-than-perfect credit ratings. These loans typically carry higher interest rates and stricter lending terms as compared to standard mortgage loans.
A Swing Loan is a short-term loan that helps homeowners purchase a new residence before selling their existing property. Often used when homeowners need to secure a new home promptly, usually a few weeks to a few months. Check out related terms like Bridge Loan and Gap Loan.
Takeout financing refers to the commitment to provide permanent financing following the construction of a planned project. It typically requires specific conditions to be met, such as achieving a certain percentage of unit sales or leases. Most construction lenders mandate takeout financing to ensure the construction loan is 'taken out' by a permanent loan post-construction.
