Real Estate Finance Key Terms and Concepts (Chapter 9)

Intercontinental Exchange London Interbank Offered Rate (LIBOR) -

A benchmark rate that some of the world's leading banks charge each other for short-term loans.

Mortgage Broker -

A broker who arranges a mortgage loan between a lender and a borrower for a fee.

Acceleration Clause -

A condition in a real estate financing instrument giving the lender the power to declare all sums owing lender immediately due and payable upon the happening of an event, such as sale of the property, or a delinquency in the repayment of the note.

Bond -

A debt instrument that represents debt.

Unconventional Loan -

A loan whereby there is government participation or cooperation.

Conventional Loan -

A loan whereby there is no government participation or cooperation.

Fixed Interest Mortgage -

A mortgage in which the interest does not change.

Freddie Mac -

A nickname for Federal Home Loan Mortgage Corporation (FHLMC), a corporation wholly owned by the Federal Home Loan Bank System that purchases FHA, VA, and conventional mortgages.

Mortgage Insurance Premium (MIP) -

A one-time premium paid at the closing pursuant to the purchase.

Debt Instrument -

A paper or electronic obligation.

Prepayment Penalty -

A penalty for paying off a loan before its maturity date.

Mutual Mortgage Insurance (MMI) -

A percentage of the amount owed.

Mortgage Banker -

A person whose principle business is the originating, financing, closing, selling and servicing of loans secured by real property for institutional lenders on a contractual basis.

Economic Index -

A piece of statistical data that is used to assess the health or condition of the overall economy.

Yield -

A return on an investment.

Seller's Market -

A scarcity of supply and a great demand.

Short Sale -

A seller's attempt to sell the real estate whereby the liens are greater than the value of the property.

Real Estate Owned (REO) -

A term used to denote that the real estate has been foreclosed upon.

Sub-Prime Mortgages (lending) -

A type of loan granted to individuals with poor credit histories (often below 600), who, as a result of their deficient credit ratings, would not be able to qualify for conventional mortgages.

Borrower Paid Points -

Additional amounts paid by the borrower outside the cost of procuring the loan.

Due on Sale Clause -

An acceleration clause granting the lender the right to demand full payment of the mortgage upon a sale of the property.

Fannie Mae -

An acronym nickname for Federal National Mortgage Association (FNMA), a privately owned corporation that purchases FHA, VA, and conventional mortgages.

Inflation -

An increase in money and credit relative to available goods that results in higher prices.

Underwriter -

An individual at a lending institution who determines credit worthiness in order to qualify an applicant for a loan.

Variable Interest Rate -

An interest rate in a real estate loan which by the terms of the note varies upward and downward over the term of the loan depending on money market conditions.

Unsecured Debt -

An obligation or debt that does not have specific property serving as collateral for payment of the debt.

Buyer's Market -

An oversupply plus lessened or decreased demand.

Negotiable Instrument -

An unconditional promise or order, to pay a fixed amount of money, with or without interest, or other charges described in the promise or order.

Return on Investment -

Any additional amount after the return of investment.

Secured Debt -

Debt that is backed or secured by collateral to reduce the risk associated with lending.

Promissory Note -

Following a loan commitment from the lender, the borrower signs a note, promising to repay the loan under stipulated terms. The promissory note establishes personal liability for its payment. The evidence of the debt.

Stock -

Represents ownership interest in a corporation.

Return of Investment -

Return or recapture of the original investment amount.

Face Value -

That amount borrowed that is displayed on the promissory note.

Gross Domestic Product (GDP) -

The aggregate (sum total) amount of the value of all goods and services provided in the economy for a certain period of time.

Supply -

The amount of a certain good or service that is available in the market.

Underwriting -

The criteria with which a lender determines the credit worthiness in order to qualify them for the loan.

Maturity Date -

The date by which a loan is to be paid in full.

Primary Mortgage Market -

The marketplace whereby loans are originated.

Secondary Mortgage Market -

The marketplace whereby the loans that were originated in the primary mortgage market are bought and sold.

Demand -

The overall desire for a product or service.

Interest Rate -

The percentage of a sum of money charged for its use. Rent or charge paid for use of money, expressed as a percentage per month or year of the sum borrowed.

Annual Percentage Rate -

The relative cost of credit as determined in accordance with Regulation Z of the Board of Governors of the Federal Reserve System for implementing the Federal Truth in Lending Act.

Equity -

The value of an asset minus the debt.

Recession -

Two or more consecutive quarters of negative growth.

Ginnie Mae -

a nickname for Government National Mortgage Association (GNMA), a U.S. government agency that purchases FHA and VA mortgages.