Think you know everything there is to know about CRE financing? Test your knowledge with this list of CRE terms.
Acceleration is an action by the lender, and it includes stating a note that is due immediately before the loan matures. This occurs when the lender feels there has been a violation of the terms of the loan.
- Adjustable Rate Mortgage (ARM)
ARM is a mortgage loan with an adjustable interest rate which increases or decreases depending on changes in a specific index.
- Amortized Loan (AMO)
AMO is a loan where repayment of the principal occurs on a monthly basis. This happens because, with each payment installment, a part of the loan pays the interest, while another part is applied to the principal.
- Annual Cap
The annual cap applies to an adjustable rate mortgage and refers to the maximum interest rate can be increased or decreased in one year. For example, if the interest rate is 7% and the annual cap is 3%, the interest rate may range from 4%-10%, but no more, even if the index rises higher than 3%.
- Annual Percentage Rate (APR)
The annual rate charged for borrowing or earned through investment. The APR is determined by adding up all the fees, rebates, interest rate, and other costs associated with a mortgage, then spreading it out over the length of the mortgage. AR is used to compare the total loan costs when comparing mortgage loans.
- Appraised Value
The appraised value is performed by a professional appraiser, who determines a property’s value based on numerous factors. It is required when you buy or sell a property, or for insurance purposes.
- Assumable Mortgage
A mortgage held by the present property owner that can be assumed by another (usually a buyer). This may be contingent upon agreement by the lender, who may require a separate qualification and approval process for the purchaser. If approved, the lender will give a written release releasing the original holder of the mortgage from the loan.
- Bad Boy Carve-out
This term refers to non-recourse loans which have a specific “bad-boy” provision that nullifies the loan and results in full recourse liability of the borrower and guarantor. Examples of bad-boy behaviors include fraud, criminal activities, gross negligence, and misappropriation of monies received.
Specific language added to a contract or agreement in advance of an event that has yet to occur.
- Balloon Payment
A payment on a mortgage that is significantly larger than other payments (hence the term “balloon”); often the last payment of the mortgage. Occurs when the mortgage on the property is not an AMO.
- Blanket Mortgage
One mortgage that covers the purchase of several properties.
- Bow-Tie Loan
A Bow-Tie Loan is a short-term CRE loan with a variable rate. When the interest rate rises above a pre-determined level, the deferred interest is rolled into the loan principal.
Although the money paid on the higher interest is applied to the principal of the loan, this can also cause the principal to increase over time, thereby increasing the term of the loan.
- Bridge Loan
A Bridge Loan is named like this because it allows the borrower to “bridge” the gap between cash flow transactions or an interim task. This includes the purchase or sale of a property, a balloon payment, find a tenant, or improvement of a property. It is a short-term loan that allows the borrower to use it until longer-term financing is arranged.
A property which was previously contaminated, but since renovated and cleared for standard CRE use.
A bucket is a category of rights, obligations, or assets within a waterfall. A waterfall is a provision in an agreement which lays out how cash profit from a property will be distributed.
- Bullet Loan
A non-amortizing CRE loan; the borrower pays the principal back in a lump sum when the loan matures, paying interest monthly. The payment at the end of the loan is referred to as a bullet loan or a balloon payment.