Glossary Terms K-O
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KICKERAn extra bonus or additional payment over and above the fixed interest already paid to an investor eg. A percentage of gross profits or cash flow.
L.T.V. (LOAN-TO-VALUE RATIO)The ratio of the loan to the lending value of a property, expressed as a percentage.
LAND ACQUISITION LOANLoan advanced to acquire land as opposed to improving land or buildings.
LAND CONTRACTA contract drawn between a buyer and seller for the sale of property.
LAND DEVELOPMENT LOANLoan advanced for the purpose of developing raw land for residential and related uses.
LEASEHOLDA type of interest in a property that is certain only for a specified period of tie granted by contract.
LEASEHOLD APPRAISALA method of estimating the value of leasehold property.
LEASEHOLD MORTGAGEA mortgage given by a lessee on the security of the leasehold interest in the land.
LEGAL DESCRIPTIONA written description by which property can be definitely located, and which is acceptable for registration in a land registry system.
LEGAL MORTGAGEA transfer of a legal estate or interest in property for the purpose of securing the repayment of a debt.
LENDING VALUEAn independent appraiser’s value interpreted by the lender as to the worth of a property in the current market given a reasonable time period to sell the property.
LESSEETenant under a lease.
LESSEE ‘S INTERESTThe market value of property less the value of the lessor’s interest. The present worth o the annual advantage, if any, accruing to the lessee by reason of the contract rent being less than the economic rent.
LESSORThe person who grants us of the property under lease to a tenant.
LETTER OF COMMITMENTLetter written by the lender containing the amount of the loan, specified interest rate, term of loan, and specific conditions.
LETTER OF CREDITLetter issued by a bank or other lending institution promising payment to a third party in accordance with the terms of the agreement. Letters of credit may be used in situations where a deposit is required or a security, eg. Where a builder is about to sign a contract and has to put up security that the job will be finished; or a security deposit under a long term lease.
LEVERAGEUpside leverage in real estate occurs when the yield or net return on property exceeds debt service for a loan. Downside or reverse leverage occurs when the debt service is greater than he net return on investment.
LIENA legal claim against a property for money owed.
LIEN HOLD BACKA percentage of the contract price or estimated cost of work to be done which is held back from the mortgage advance.
LINE OF CREDITA maximum credit limit allowed by a bank to a borrower, as long as the borrower maintains an acceptable balance on account or has a good credit rating. The credit line will vary from time to time according to the changing circumstances of the borrower or the bank.
LIS PENDENSA legal document giving notice that an action or proceeding is pending in the courts which affects the title to the designated property.
LOAN COVERAGEThe ratio of net operating income to debt service – in general loan coverage of 1.3 to considered adequate for a loan to value ratio of 75%.
LOAN FEEA charge for making a loan in addition to the interest charged to the borrower.
LOAN LOSS RESERVEA reserve shown on a balance sheet of a real estate company as provision for any future losses in assets.
LOAN ORIGINATIONAnalysis of loan applications from prospective purchasers to determine if they meet with requirements and if so, the lender will issue a commitment letter.
LOAN PORTFOLIO TURNOVERThe average length of time required for the turnover of mortgage loans, ie. until maturity.
LOAN PROCESSINGUpon application and approval of a loan, the lender has to go through a fairly standard procedure to finalize and disburse the loan such as the setting up of files, ordering of credit reports, verification of employment, bank accounts, etc.
LOAN RATIOThe ratio of the principal amount of the loan to the lending value of the property.
LOCK-IN CLAUSEA clause which restricts prepayment of a loan during a specified period of the whole term of the mortgage. This ensures that the lender receives a stipulated return on his investment and discourages “shopping around” for another loan.
MARGIN OF SAFETYA measure of the extent to which a loan is protected by property values of operating income. In the case of a mortgage, the margin of safety is the excess of equity (at fair market value) above the outstanding amount of the loan.
MARKETABLE TITLEA title which a court of equity considers to be so free from defect that it will enforce acceptance by a purchaser.
MATRIMONIAL HOMEAny property in which a person has an interest and that is or has been occupied by the person and his or her spouse as their family residence. Condominiums, co-operatives, and leasehold interests can be matrimonial homes.
MATURITY DATEThe last day of the term of the mortgage agreement. A mortgage loan must then be paid in full or the agreement renewed.
MECHANICS LIENA claim against the state or interest of the owner in a property for labour, services, or materials supplied to it.
METES AND BOUNDSA system of land description whereby all boundary lines are set forth by use of terminal points and angles -mete referring to a limit or limiting mark, and bounds referring to boundary lines.
MIXED USE DEVELOPMENTA large scale real estate project which is developed for a number of uses. An example of mixed use development is a shopping centre complex.
MORATORIUMLegislation enacted to assist debtors by postponing or suspending their contractual payments.
MORE OR LESSTerm often found in a property description intended to cover slight, unimportant or insubstantial inaccuracies to which both parties are willing to assume risk.
MORTGAGEThe legal pledge of real estate as security for a loan.
MORTGAGE BANKERMore prominent in the USA as principals of mortgage funds.
MORTGAGE BONDA bond issued by corporations and secured by a mortgage on their property.
MORTGAGE BROKERA person who originates real estate loans and allocates mortgage funds. These funds are placed on behalf of others, through negotiation of lenders and borrowers for the best possible arrangement and satisfaction of all concerned. Licensed in Ontario by the Ministry of Financial Institutions. Could also be known as an underwriter, correspondent or investment dealer in a mortgage transaction.
MORTGAGE COMMITMENTA formal indication by a lending institution that it will grant a mortgage loan on property, in a certain specified amount and on certain specified terms.
MORTGAGE DEBENTURESynonymous with mortgage bond.
MORTGAGE LOANAn agreement by which sum of money is borrowed and a promise to repay is given, wherein as a further security the borrower gives to the lender a conveyance or charge on property which he owns.
MORTGAGE NOTEA promissory note executed in favour of the lender giving him an encumbrance or lien on the borrower’s property. A mortgagor is usually personally liable on the note.
MORTGAGE PORTFOLIOSeveral mortgages held by a mortgagee, lender or broker en bloc.
MORTGAGE POSTPONEMENTThe process whereby a mortgagee may permit the borrower to renew or replace an existing mortgage that falls due prior to the maturity date of the subject mortgage.
MORTGAGEEThe lender
MORTGAGEE IN POSSESSIONA mortgagee goes into possession by entering into actual occupation of, or by obtaining the receipt of the rents of the mortgaged premises.
MORTGAGING OUTTerm applied to a mortgage which exceeds the current value of the property on which it is secured. This type of mortgage may be obtained on improvable property where the security is based on future value and future earnings which are expected to exceed construction costs.
MORTGAGORThe Borrower
NATIONAL HOUSING ACT MORTGAGEA first mortgage, originated by an approved lender, granted under the terms of, and insured under, the National Housing Act 1954.
NEGATIVE CASH-FLOWWhere operating costs exceed gross rental income or debts.
NET OPERATING INCOME (NOI)The balance remaining after deduction of operating expenses from gross receipts and gross rental, but not including the deducting of debt service on mortgages. Free and clear return on property is calculated by the ratio of NOI to total investment including mortgages and equity. This gives a direct means of comparing the return on different properties.
NET RATE OF INTERESTThe interest rate received by a mortgage lender net of the servicing fee deducted by a loan correspondent, etc.
NOMINAL INTEREST RATEInterest rate stated on the face on a loan document. However, if the loan amount is discounted or sold at premium, the effective rate of interest will either be higher or lower.
NON-RECOURSE LOANA clause in a loan which waives personal liability of the borrower on the loan.
NOTICE D.O.R.Notice filed in court by mortgagor under foreclosure proceedings that s/he desires an opportunity to redeem.
OBLATORY ADVANCEAn advance made according to terms of a pre-existing construction loan agreement or mortgage.
OFFER TO PURCHASEA written proposal to purchase real estate that becomes binding upon acceptance of the vendor
OPEN OR CLOSEDThe restriction or denial of repayment rights until the maturity of the mortgage is a “closed” mortgage. If specified on document as “open”, then mortgagor can pay extra payments of principal sums at any time or at specified times, with or without repayment penalty.
OPEN END MORTGAGEA mortgage under which the lender has the option of advancing more funds where, for example, the value of te property is anticipated to increase.
OPERATING EXPENSESGenerally speaking, all expenses, occurring periodically, which are necessary to produce net income before depreciation. Under some conditions these expenses are placed in two categories, namely, operating expenses and fixed charges.
OPTIONA right give by the owner of property to another (for valuable consideration) to buy certain property within a limited time at an agreed price.
OWNERThe lawful possessor of the title to real property.
