Helpful Buy-To-Rent Finance Industry Keywords

Contributing Writer, B2R Finance | Landlords,Real Estate

Below are a handful of buy-to-rent finance industry keywords for reference:

Amortization

Amortization is the process by which loan principal decreases over the life of a loan. As each mortgage payment is made, a portion of the payment is applied towards reducing the principal, and another portion of the payment is applied towards paying the interest on the loan.  For a 30 year amortization loan, the amortization payment is designed so that the loan principal is repaid over a 30 year period, assuming a constant debt service payment.

Debt Service Coverage Ratio (DSCR)

DSCR is the underwritten net cash flow of the rental properties divided by the scheduled principal and interest payments of the loan.

Debt Yield

The debt yield is the underwritten net cash flow of the rental properties divided by the loan amount, expressed as a percentage.

Fixed Rate Loan

Fixed rate loans have an interest payment that remains the same for the term of the loan.

Floating Rate Loan

Floating or variable rate loans have an interest payment that fluctuates over time with a benchmark interest rate (generally LIBOR).

Loan-To-Value (LTV)

The loan-to-value (LTV) ratio is the loan amount divided by the value of the properties determined in an appraisal of the properties ordered by B2R Finance, expressed as a percentage.

Non-Recourse Loan

A non-recourse loan is secured by the real estate of the borrower and is not guaranteed by the owner except for customary recourse carve-outs (such as fraud and bankruptcy) and certain environmental matters.

Recourse Loan

A recourse loan is secured by the real estate of the borrower as well as a full principal guarantee from the owner of the borrower.

Special Purpose Entity (SPE)

A newly formed entity (usually a limited liability company) whose only purpose is to own the real estate collateral and act as the borrower for the real estate loan.

Spread/Yield Maintenance

Spread and yield maintenance are forms of prepayment fees that are only payable if the borrower elects to repay the loan earlier than six months prior to maturity.

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