Commercial Real Estate & Mortgage Glossary of Terms

A

Amortization
The gradual repayment of a loan through regular payments of principal and interest over time.

Appraisal
A professional assessment of a property’s market value, used by lenders to determine loan amounts and risk.

B

Balloon Payment
A large, lump-sum payment due at the end of a loan term, often following smaller monthly payments.

Bridge Loan
A short-term loan used to finance the purchase or development of a property until permanent financing is secured.

C

Cap Rate (Capitalization Rate)
A metric used to estimate the return on a real estate investment, calculated as Net Operating Income divided by property value.

Cash Flow
The net income generated from a property after operating expenses and debt service have been paid.

Closing Costs
Fees and expenses incurred during the finalization of a real estate transaction, including appraisal, title, and legal fees.

Commercial Property
Real estate intended for business use, such as office buildings, retail spaces, multifamily units, or warehouses.

D

Debt Service
The total amount required to repay loan principal and interest over a specific period.

Debt Service Coverage Ratio (DSCR)
A ratio used by lenders to measure a property’s ability to cover debt payments, calculated as Net Operating Income divided by debt service.

E

Equity
The portion of a property’s value that the owner actually owns, calculated as market value minus outstanding debt.

Escrow
A financial arrangement in which a neutral third party holds funds or documents until agreed-upon conditions are met.

F

Fixed-Rate Loan
A loan with an interest rate that remains constant throughout the term of the loan.

Foreclosure
A legal process in which a lender takes ownership of a property due to loan default by the borrower.

G

Gross Income
Total income generated by a property before expenses are deducted.

Gross Rent Multiplier (GRM)
A valuation metric calculated by dividing a property’s price by its gross rental income.

H

Interest-Only Loan
A loan where the borrower pays only interest for a specified period before principal repayment begins.

Internal Rate of Return (IRR)
A measure of the expected profitability of an investment, factoring in the time value of money.

L

Loan-to-Value Ratio (LTV)
A percentage that represents the amount of the loan compared to the property’s appraised value.

Leasehold Interest
A tenant’s right to use and occupy real estate for a set term under a lease agreement.

M

Market Value
The estimated price a property would sell for in a competitive and open market.

Mixed-Use Property
A development that combines residential, commercial, and sometimes industrial uses in a single project.

N

Net Operating Income (NOI)
The income a property generates after subtracting all operating expenses, excluding debt payments and taxes.

P

Prequalification
A preliminary evaluation of a borrower’s creditworthiness and borrowing capacity based on self-reported information.

Principal
The original loan amount borrowed, excluding interest.

T

Term Sheet
A non-binding document that outlines the basic terms and conditions of a proposed loan.

Title Insurance
A policy protecting the buyer or lender from financial loss due to defects in the property’s title.

U

Underwriting
The process by which lenders assess the risk of lending, reviewing the borrower’s credit, income, assets, and the property value.