Long-term financing, also known as permanent mortgage, involves a loan with a long repayment period, typically extending over several years or decades. This form of financing is commonly used for purchasing real estate or significant capital investments, and provides borrowers with stability and predictable payment schedules.
Mezzanine financing is a hybrid form of funding positioned between senior debt and equity, offering higher returns to lenders due to its subordinate status in the capital structure.
A process whereby a specific mortgage lender certifies that a prospective borrower is financially qualified and creditworthy for a specific type of loan with specified terms for an amount up to a specified maximum. Actual advancement of the loan will depend on the suitability and value of the collateral property, which is unspecified at the time of pre-approval. Contrast PREQUALIFY.
A mortgage banker originates, sells, and services mortgage loans, playing a crucial role in the real estate financing landscape by facilitating access to home loans and managing mortgage-backed securities.
A mortgage broker acts as an intermediary between borrowers and lenders. For a fee, typically paid by the lender, a mortgage broker connects borrowers to loan products without servicing the loans themselves.
A mortgage commitment is an agreement between a lender and a borrower to lend money at a future date, subject to the conditions described in the agreement. It is a critical step in the home-buying or construction process, which signifies the lender's intention to offer financing upon meeting specific requirements.
A mortgage discount refers to an initial amount deducted by lenders from the principal of a loan, often represented in terms of 'points.'
Mortgage Guarantee Insurance Company (MGIC) is a private institution that provides insurance to lenders, ensuring loan repayment in case of default or foreclosure by the borrower.
A mortgage loan is a type of loan secured by real estate property that the borrower is obliged to pay back with a predetermined set of payments. It allows individuals and businesses to purchase real estate without paying the full value upfront.
A mortgagor is the owner of real estate who provides their property as security for a mortgage loan.
Negative amortization refers to an increase in a loan's outstanding balance due to periodic debt service payments being insufficient to cover the required interest charges. This generally occurs with indexed loans where the interest rate can be adjusted without altering the monthly payment amount.
Negative leverage, also known as reverse leverage, occurs when the cost of borrowing exceeds the income generated by an investment, resulting in a lower overall return.
An open mortgage is a mortgage that has matured or is past its due date and hence remains open to foreclosure or repayment without any prepayment penaltiesat any time. It allows for flexibility for both the borrower and the lender.
An Option ARM (Adjustable-Rate Mortgage) is a type of mortgage loan that allows borrowers to select from multiple payment options each month, enabling flexibility based on financial circumstances. These payment options typically include fully amortizing payments, interest-only payments, and minimum payments that can lead to negative amortization.
The origination process encompasses all the steps required to fund a loan, including due diligence, financial planning, and necessary lender approvals, aiming at assessing and mitigating risk while optimizing financial outcomes.
Owner financing, also known as seller financing, is a real estate arrangement where the seller provides a loan to the buyer to purchase the property, bypassing traditional mortgage lenders.
An owner occupant is a resident of a property who also owns the property. This term differentiates from absentee owners and rental tenants and has significant implications for real estate, including financing and tax benefits.
A provision in a mortgage that allows some of the property pledged to be freed from serving as collateral.
A Participating Mortgage (Loan) is a financing arrangement where the lender is permitted to share in a portion of the property's income or the resale proceeds, alongside the fixed principal and interest payments.
Participation refers to the sharing of ownership in a loan by two or more investors, enabling them to collectively pool resources and share the risks and rewards associated with the loan.
A permanent lender provides long-term financing for real estate projects, typically following the completion of construction. Unlike construction lenders, who offer short-term loans for building and development phases, permanent lenders focus on financing properties for extended periods.
A piggyback loan combines a construction loan with a permanent loan commitment or refers to a mortgage held by more than one lender, often used to avoid private mortgage insurance.
A Pledged Account Mortgage (PAM) is a type of home purchase loan where the borrower sets aside a sum of cash in a pledged account that is used to supplement mortgage payments in the initial years, reducing the payment amount during this period.
Points are fees paid to lenders to reduce the interest rate or secure a mortgage loan. Each point is 1% of the loan principal, affecting the overall loan cost and effective interest rate.
Prepaid interest refers to interest that is paid in advance of the time it is earned. It's typically associated with mortgage loans where borrowers pay interest upfront to reduce future interest payments.
Prepaying a mortgage involves retiring the principal balance, either in full or partially, before the scheduled due date according to the mortgage contract. This action can release the borrower from future interest payments and may lead to early ownership of the property.
The primary mortgage market is where borrowers and lenders come together to originate mortgages. This market includes various institutional lenders such as savings and loan associations, banks, and mortgage bankers and brokers.
The term 'Purchase Price' refers to the dollar amount agreed upon by the buyer and the seller for the sale of a property. This figure is specifically outlined in the sales contract and does not take into account any adjustments for financing, concessions, or seller-paid closing costs.
A rate guarantee, also known as a locked-in interest rate, ensures that the interest rate on a mortgage loan will not change for a specified period, even if broader market interest rates fluctuate during that time.
A Rate Lock secures a specified interest rate for a mortgage, assuring homebuyers or refinancers that their rate will not increase between the date of the agreement and the closing date of the loan, provided the borrower closes within the specified time frame and there are no changes to their application.
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.
Refinancing replaces an old loan(s) with a new loan(s), potentially securing better terms, reduced payments, or accessing cash.
A Renegotiated-Rate Mortgage (RRM) is a unique type of mortgage loan where the interest rate is revised at predetermined intervals. It is distinctive because it does not rely on economic indices for its rate adjustments.
A repayment plan is an agreement between a lender and a delinquent borrower in which the borrower agrees to make additional payments to pay down past due amounts while continuing to make regular scheduled payments.
A type of mortgage loan commonly used in Canada, where the amortization term for principal repayment extends over a long period, but the interest rate is set for a much shorter term. The interest rate is renegotiated, or the loan 'rolls over,' at the end of this shorter term based on current market conditions.
A sale-leaseback allows the owner of a property to sell it and simultaneously lease it back from the buyer, converting from owner to tenant while freeing up capital for other uses.
Secondary financing refers to an additional loan that is secured by a property that already has a primary loan (first mortgage) attached to it. This type of financing is often used to bridge financial gaps when purchasing or refinancing property.
Seed money is the initial capital needed to start a real estate development project, covering costs such as feasibility studies, loan application and commitment fees, and initial legal and accounting services.
A senior mortgage, also known as a first mortgage, is the primary loan taken out on a property that holds the highest claim on the borrower's assets in case of foreclosure. It holds precedence over all other loans or claims on a property in the event of the borrower's default.
Servicing in real estate refers to the administration of a mortgage loan, encompassing activities such as billing, payment collection, and filing reports. This can also extend to loan analysis, default followup, and managing tax and insurance escrow accounts. Typically, mortgage bankers perform these tasks for a fee after the loans are sold to investors.
A Shared Appreciation Mortgage (SAM) is a type of mortgage where the lender offers a reduced interest rate in exchange for a share of any increase in the value of the property.
A stable mortgage is a hybrid mortgage loan instrument that merges fixed and adjustable rates in the same loan, creating a balanced approach to risk and predictability.
A commitment made by a lender to make a sum of money available at specified terms for a specified period, subject to the payment of a standby fee by the borrower.
A step loan is a type of adjustable-rate mortgage where the interest rate is adjusted only once during the life of the loan, blending characteristics of both fixed-rate and adjustable-rate loans.
A subordinate mortgage, also known as a junior lien, is a mortgage that is ranked below a primary mortgage in terms of claim priority. In the event of a foreclosure, the primary mortgage is paid off first, and any remaining funds go towards paying the subordinate mortgage.
A financial agreement that changes the priority of claims on a property, such as converting a first mortgage to a second mortgage.
Table funding refers to the practice of originating mortgage loans using a lender's internal capital until these loans are packaged together and sold in the secondary market. This process enables the lender to recoup capital, allowing continued lending activities.
A term loan is a loan with a set maturity date, typically borrowed with little to no amortization of the principal balance, requiring a significant payment at the end of the term.
A term mortgage is a type of mortgage that matures, or comes due, after the lapse of a pre-agreed-upon period of years, typically ranging from one to ten years.
Third-Party Mortgage Origination involves the process of using an intermediary, generally a mortgage broker, between the borrower and the lending institution. The intermediary performs all tasks and duties required to originate the loan according to the requirements of the lending institution.
A loan guarantee involves agreeing to indemnify the holder of a loan for all or a portion of the unpaid principal balance in the event of a borrower's default.
A Two-Step Mortgage, also known as a Hybrid Mortgage, combines an initial fixed interest rate period with an adjustable rate for the remainder of the loan term.
An underlying mortgage refers to the first mortgage secured by a property when there's also a wraparound mortgage. It forms the basis of the total debt, while the wraparound mortgage includes additional financing layered on top of it.
An upside-down mortgage occurs when the balance of a mortgage loan is greater than the value of the property securing the loan. Homeowners with such mortgages have negative equity and cannot sell or refinance the property without incurring losses.
The VA Department of Veterans Affairs (formerly the Veterans Administration) is a U.S. government agency tasked with providing various services and benefits to discharged service members, including VA loans or mortgages.
A VA Loan or Mortgage is a home loan guaranteed by the U.S. Department of Veterans Affairs (VA) typically available to eligible veterans, active-duty service members, and certain members of the National Guard and Reserves.
A Variable-Maturity Mortgage (VMM) is a long-term mortgage loan where the interest rate may be adjusted periodically, impacting the loan term while keeping the payment levels constant.
A Variable-Rate Mortgage (VRM) is a real estate loan in which the interest rate applied on the outstanding balance varies throughout the life of the loan. The rate adjustments are based on predetermined benchmarks such as the prime rate or U.S. Treasury rates.
‘Without recourse’ is a term used in endorsing a note or bill to indicate that the holder cannot look to the debtor personally for payment if the debtor defaults. The recourse is only to the property involved. It is similar to a nonrecourse loan and is often used as a form of exculpation.
A Working Mortgage is a mortgage loan where payments are made more frequently than once a month, usually timed to align with the borrower's pay period. This payment structure typically accelerates the amortization of the loan, resulting in less interest paid over the life of the loan.
A wraparound mortgage is an innovative financing tool that includes an existing underlying mortgage within its structure, facilitating real estate transactions by streamlining payment processes. It features a consolidated loan combining both old and new debts, circumventing the traditional need for two separate mortgages.
