Commercial Lending Glossary
A glossary of definitions for common terms used in commercial real estate hard money lending & CRE investing.
ABA Routing Number
Also known as the "routing number" or "routing transfer number," this sequence of nine numbers is used to identify financial institutions within the United States. The ABA is used for electronic transactions such as direct deposits, e-checks, and tax payments, and is frequently (but not always) located at the bottom of bank checks.
The amount of time between interest rate adjustments of adjustment rate mortgages (ARMs). For example, a 1-year ARM adjusts every year, so the interest rate adjustment period is one year. Also known as the "interest rate adjustment period."
Adjustable Rate Mortgage (ARM)
This type of mortgage loan carries an interest rate on the note which is periodically adjusted based on an index reflecting the lender's cost of borrowing on the credit markets. ARMs are capped on charges and are regulated by the Federal government. Outside of the United States, the term "variable-rate mortgage" is more common.
The process of paying off debt in regular installments over a period of time with a fixed repayment schedule. Amortization commonly refers to the payments made on mortgages or car loans, but can also refer to the spreading out of capital expenses over a specific duration.
Annual Percentage Rate (APR)
The annual rate charged for borrowing, or the annual rate earned through an investment - expressed as a percentage. APR represents the actual yearly cost of funds over the term of a loan, including additional costs and fees associated with the loan. While this rate does not factor in compounding, it helps create a standard for understanding the total costs of borrowing to mitigate the variation between loans and credit agreements.
This popular form of property valuation represents an estimate of an authorized person, known as an appraiser. Appraisals may include many different types of valuation methods to determine a value, including the quality of the property, its features, and the current market value of other similar properties. There are many applications for appraisals, including for insurance or taxation purposes, to determine a selling price, and to secure proper loan values.
The increase of the value of an asset over time. Whether due to increases of demand, weakened supply, or simply due to inflation or other market changes, appreciation refers to increases in value of a wide set of assets, from real estate to antiques and beyond. Can be contrasted with depreciation.
An account is "in arrears" if one or more (contractually required) regular payments have been missed. This overdue debt can apply to rent payments, mortgages or other loans, and various types of utility bills.
A resource with some economic value. Resources like this are held by a wide range of groups ranging from individuals to nations, and are reported on balance sheets. Assets are controlled with the expectation they will provide some future benefit, economic or otherwise, to the firm. Assets can include real estate, machinery, funds, patents, or other resources.