Helpful Buy-To-Rent Finance Industry Keywords
Below are a handful of buy-to-rent finance industry keywords for reference:
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.
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).
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.
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.
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 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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