Chapter 16: Commercial Mortgage Types & Decisions

These flashcards cover the key vocabulary and concepts related to commercial mortgage types and decisions as discussed in the lecture.

Balloon Mortgage

A loan structure where payments are calculated as if amortized over a longer period, but the loan matures in a much shorter time, resulting in a large final payment.

Mezzanine Debt

A form of financing that is subordinate to senior debt but higher than equity in the capital stack, often providing higher returns at higher risk.

LTV (Loan-to-Value) Ratio

A financial term used by lenders to express the ratio of a loan to the value of an asset purchased, calculated as Loan Amount ÷ Property Value.

DCR (Debt Coverage Ratio)

A ratio used to measure the cash flow available to pay current debt obligations, calculated as NOI ÷ Annual Debt Service.

Recourse Loan

A loan that allows lenders to seek repayment from the borrower's other assets in case of default.

Bridge Loan

Short-term financing used until a borrower secures permanent financing or removes an existing obligation.

Construction Loan

A short-term loan used to finance the building of a property, typically disbursed in draws as construction progresses.

'Bad Boy' Clauses

Provisions in commercial loans that cause the borrower to lose non-recourse protection under specific misconduct circumstances.

Underwriting

The process of evaluating the risk and potential profitability of a loan application based on specific criteria.

Amortization

The gradual reduction of a loan balance through scheduled payments, which include both principal and interest.