Terms Used in Real Estate - Pt 2

Among the most common methods to attain one’s very own property is through getting a loan also known as loan financing. This process means that the funds the prospective property customer will pay via an institution like a bank or a financial company. The company or the bank will be referred to as the lender. Any quantity given by the institution to assist in purchasing real estate will then be given back in a length of time agreed upon between the lender and the buyer who will then be referred to as the borrower.

It is clear that, financial jargon are not the simple to understand. Because of such causes miscommunications between lenders and debtors often times happen. Here are some confusing yet common jargon which can aid in making a financial process easier for both parties.

No Prepayment
From the term itself, it points that making the payment for what’s due on a date prior to the set time is not allowed. For residential real estate funding this is at times allowed. However, for commercial property financing this could constitute a loss of revenue for the lender. Thus, it is not permitted and is sternly implemented. Should the client is insistent on making the payment beforehand, the only option is defeasance. This is alternating another value and payment for the ones the borrower is giving. The most common one is the treasury collateral.

Bond Financing
This is defined as a classification of funding commonly spent on a plan. This kind of funding is usually fits when engaging in lasting term leases or mortgage. Collateral financed plans are commonly government tenanted, if not plans which are affiliated with a regional government entity. This is almost similar to a loan. The difference is, a bond has more than one borrower who borrows not only to one institution but to an entire market.

Recourse
Recourse pertains to the fraction of the financial agreement which indicates that the value as well real estate can be revoked as recovery pay for loans that are not paid. Usually, real estate funding is accomplished with a non-recourse foundation. Nevertheless, present loans actually have a recourse arrangement. Thus, when a period has passed and the loan is not paid for, the property in question will be revoked as well as properties beyond it that may substitute as pay.

Insurance Requirements
Insurance requirements are a regular aspect in loan papers. These are the forms and evidences that will assure the whole real estate being purchased and lent for. Since asset financing is secured with the real estate itself, the insurance forms become a crucial aspect of the process. The financier considers the maintenance of the real estate and more importantly, the insurance terms. Deficits that could be acquired due to calamities and natural disasters like fire, and tremors can affect the lender as much as the borrower or the owner of the real estate. Hence, insurance requirements are extremely important.

Andy Fox is an authority in Manila Real Estate. The author is also an authority in Ortigas Real Estate.

The writer is also a practitioner in the overseas venture asset market, specializing in property and real estate through manilaestates.com; a website that deals with main property investment markets in the Philippines