Adjustable Rate Mortgage:
A 2-dimensional measure of land equaling 160
square rods, 10 square chains, 4,840 square
yards, or 43,560 square feet.
The period of
time between changes in the interest rate
for an adjustable-rate mortgage. Typical
adjustment intervals are 6 months and 1
Noted in the
appraisal, the non-monetary benefits derived
from property ownership.
The period, or
length of time, over which the principal
portion of a mortgage loan is scheduled to
be paid down through periodic payments.
An estimate of the value of a
property made by a qualified professional
called an appraiser. (Impero Commercial
Lending typically requires the appraiser to
be MAI certified.)
A mortgage loan which can be transferred to
another person without a change in the terms
of the loan. This typically requires a
flat-fee to be paid to the lien-holder for
One large payment of the remaining
principal balance of a mortgage, due at a
time specified in the contract (i.e. a
5-year balloon would have periodic payments
made through 5 years and then a lump-sum
payment made on the 60th month.)
1/100th of 1% usually expressed as a
margin over an index rate.
Borrowing Entity Type:
The legal form under which property
A short-term or interim loan for
borrowers who need more time to find
permanent-financing or are repositioning a
(see Balloon Payment) Essentially the
lien-holder has a �call provision� noted in
the contract in which they can call the note
due in full. Typically this is a 5-year or a
Line items on a Profit and Loss
statement that would not be expensed on an
annual basis. This category would include
replacement of major building systems, such
as roofs, etc.
The definition used for the inclusion
of recourse in loan documents for fraud and
When the principal amount of a new
mortgage involved in refinancing is greater
than the principal amount outstanding on the
existing mortgage being refinanced, and all
or a portion of the equity is converted to
Commercial Mortgage-Backed Security
A bond or other financial obligation
secured by a pool of mortgage loans.
of Funds Indexl (COFI): Index used to determine interest rate
changes for adjustable rate mortgages. It is
based on the cost of funds of the 11th
District of the Federal Home Loan Bank.
The financial intermediary that
sponsors the link between the lender(s)
originating loans and the ultimate investor.
The conduit makes or purchases loans from
third-party correspondents under
standardized terms, underwriting and
documents and then, when sufficient volume
has been obtained, pools the loans for sale
to investors in the CMBS market.
Constant Maturity Treasury
(CMT): An index based on the U.S. Treasury
that is used in the pricing of debt for
The type of construction used for a
commercial building (i.e. concrete tilt-up,
The periodic payments (principal and
interest) made on a loan.
Debt Service Coverage Ratio (or Debt
Measures a mortgaged-property�s
ability to cover monthly payments defined as
the ratio of net operating income over the
periodic payments (principal and interest)
made on a loan. A DSCR of less than 1.0
means that there is insufficient cash flow
generated by the property to cover required
debt payments. Typically a lender requires a
DSCR of 1.25 or better depending on the
A clause in a mortgage that gives the
borrower the right to prepay a commercial
mortgage by purchasing US Treasuries in an
escrow account to pay off ongoing debt
The rate of interest that the Federal
Reserve charges member banks for loans.
Environmental Report: Report
generated by qualified environmental firms
to determine potential environmental hazards
in a building's region or within the
building itself. These reports are typically
called a "Phase I", "Phase II", etc and
subsequent reports are only required if the
preceding report expresses any concerns as
to the suitability of the property.
Risk of loss of collateral value and
of lender liability due to the presence of
hazardous materials, such as asbestos,
PCB's, radon or leaking underground storage
tanks on a property.
Federal Funds (Fed Funds):
Fed Funds is the interest rate charged by
those banks with excess reserves on hand
(reserves over and above the minimum
required by the Federal Reserve) to those
banks in need of overnight loans to meet
reserve requirements. Since it is set daily,
the Federal Funds rate is the most sensitive
indicator of the direction of interest
A mortgage with an interest rate that
remains constant for the life of the loan.
The sum paid for borrowing money,
which pays the lender's costs of doing
The sum charged for borrowing money,
expressed as a percentage
Interest Rate Cap:
Limits the interest rate or the
interest rate adjustment to a specified
maximum. This protects the borrower from
increasing interest rates.
Libor: The rate that the
most creditworthy international banks
dealing in Eurodollars charge each other for
large loans. Rates are quoted in monthly
increments out to 1 year.
Loan Processing Fee:
The fee charged by a lender to
prepare all the documents associated with
: The ratio between the principal
amount of the mortgage balance, at
origination or thereafter, to the current
value of the underlying real estate
collateral. The ratio is commonly expressed
to a potential borrower as the percentage of
value a lending institution is willing to
finance. The ratio is dynamic and varies by
lending institution, property type,
geographic location, property size, etc.
A period of time after loan
origination during which a borrower cannot
prepay the mortgage loan without paying the
interest the loan would have incurred during
the lock-out period.
Margin: The amount that is
added to an index rate to determine the
total interest rate.
Monthly Average Treasury.
1. The termination period of a note
(e.g., a 25�year mortgage has a maturity of
25 years). 2. In sales law, the date a note
A loan secured by a mortgage or trust
deed in which the lien is junior, or
secondary, to another mortgage or trust
The market for short-term debt
Multi-Family Property Class A:
Properties are above-average in terms
of design, construction and finish; command
the highest rental rates; have a superior
location, in terms of desirability and/or
accessibility; generally are
professionally-managed by national or large
regional management companies.
Multi-Family Property Class B:
Properties frequently do not possess
design and finish reflective of current
standards and preferences; construction is
adequate; command average rental rates;
generally are well-maintained by national or
regional management companies; unit sizes
are usually larger than current standards.
Multi-Family Property Class C:
Properties provide functional
housing; exhibit some level of deferred
maintenance; command below-average rental
rates; usually located in less desirable
areas; generally managed by smaller, local
property-management companies; tenants
provide a less-stable income stream to
property owners than Class A and B tenants.
A mortgage or deed of trust securing
a note without recourse allowing the lender
to look only to the security (property) for
repayment in the event of default, and not
personally to the borrower. A loan not
allowing for a deficiency judgment. The
lender�s only recourse in the event of
default is the security (property), and the
borrower is not personally liable.
Notice of Default (NOD):
To initiate a non-judicial
foreclosure proceeding involving a public
sale of the real property securing the deed
of trust. The trustee under the deed of
trust records a Notice of Default and
Election to Sell ("NOD") the real property
collateral in the public records.
Securing a completed mortgage
application from a commercial (or
(see environmental report) An
assessment and report prepared by a
professional environmental consultant who
reviews the property - both land and
improvements - to ascertain the presence or
potential presence of environmental hazards
at the property such as underground water
contamination, PCB's, abandoned disposal of
paints and other chemicals, asbestos and a
wide range of other potentially damaging
materials. This Environmental Site
Assessment (ESA) provides a review and makes
a recommendation as to whether further
investigation is warranted (a Phase II
Environmental Site Assessment). This latter
report would confirm or disavow the presence
of an environmental hazard and, should one
be found, will recommend additional review
and/or mitigation efforts that should be
(Loan Discount Points):
Each point is equal to 1% of the
total amount of a mortgage. Typically
charged in connection with originating or
funding a loan.
Fees paid by borrowers for the
privilege of retiring a loan early.
The rate at which banks lend to their
most creditworthy customers.
1. The amount of debt, not including
interest, left on a loan. 2. The face amount
of the mortgage.
An index used to adjust the interest
rate of an adjustable mortgage loan (e.g.,
the change in U.S. Treasury securities
(T-Bills) with 1-year maturity. The weekly
average yield on said securities, adjusted
to a constant maturity of 1 year, which is
the result of weekly sales, may be obtained
weekly from the Federal Reserve Statistical
Release H.15 (519). This change in interest
rates is the "index" for the change in a
specific Adjustable Mortgage Loan.
A list of tenants leasing a property,
which details terms of lease, area leased,
and the amount of rent being paid.
An amount set aside from net
operating income to pay for the eventual
wearing out of short-lived assets. Monthly
deposits that a lender may require a
borrower to reserve in an account, along
with principal and interest payments for
future capital improvements of major
building systems; (i.e., HVAC, parking lot,
carpets, roof, etc.)
In CMBS, portion of the bond proceeds
that are retained to cover losses on the
mortgage pool. A form of credit enhancement
(also referred to as "reserve accounts").
A mortgage that is second in priority
because of the time of recording the
mortgage or of the subordination of the
Secondary Mortgage Market:
The buying and selling of first
mortgages or trust deeds by banks, insurance
companies, government agencies, and other
mortgagees. This enables lenders to keep an
adequate supply of money for new loans. The
mortgages may be sold at full value ("par")
or above, but are usually sold at a
discount. Not to be confused with a "second
One that will retire itself through
regular principal and interest payments.
Contrast with balloon mortgage or
Number of basis points over a base
& Insurance Impound:
Monthly deposits that a lender may require
to be included with principal and interest
payments for the payment of taxes and
The length of time a mortgage rate is
fixed or adjustable prior to it coming due.
Different from loan amortization.
Third Party Costs:
Costs resulting from third-party
reports such as appraisal reports,
environmental reports or structural
An insurance policy that insures you
against errors in the title search -
essentially guaranteeing your, and your
lender's, financial interest in the
U.S. Treasury Bill:
Treasury Bills, or T-Bills, are
short-term securities with maturities of up
to one year. They are issued by the U.S.
Government at a discount from face value.
The price is quoted in yield, not dollars.
At maturity, T-Bills are redeemed for full
face value. T-bills are issued in
three-month, six-month and 1-year maturities
and are backed by the full faith and credit
of the U.S. Government.
U.S. Treasury Bond:
Treasury Bonds are long-term
securities with maturities greater than 10
years. Treasury bonds are coupon-bearing
securities that pay interest on a
semi-annual basis. Treasury bonds are backed
by the full faith and credit of the U.S.
U.S. Treasury Note:
Treasury Notes are intermediate-term
securities issued with 2, 3, 5, and 10-year
maturities. Treasury notes are
coupon-bearing securities that pay interest
on a semi-annual basis. Treasury notes are
backed by the full faith and credit of the
The process of deciding whether to
make a loan based on property cash flow,
credit, and/or other factors.
The rate of return on a security,
taking into consideration annual interest
payments, purchase price, redemption value,
and the time remaining until maturity.
A prepayment premium that allows
investors to attain the same yield as if the
borrower made all scheduled mortgage
payments until maturity. Yield maintenance
premiums are designed to make investors
indifferent to prepayments and to make
refinancing unattractive and uneconomical to