Glossary - P
- Partial discharge
- In matters pertaining to real estate, the expression partial discharge, also called partial release, refers to a provision in mortgages that permits the release of some of the pledged security provided specific prerequisites are fulfilled. In other words, the term denotes the release of a part of an interest, obligation or right following the fulfillment of certain conditions enclosed in the mortgage agreement/ contract.
Basically, there are two kinds of discharge or release - partial or full - that are most frequently talked about in this case. In the event of a partial discharge, a registration is released in part, for instance, while a piece of the concerned land is released, the remaining part of the land continues to be conditional on the specific registration. In case the registration has been done for more than one title, a partial discharge possibly will take away the registration from a number of titles, while the others will remain subject to the registration. On the other hand, if the registration is made against only one title, the partial discharge will possibly do away with the registration from a part of the land, while the residual land will be conditional on that registration. It is essential to analyze a partial discharge watchfully with a view to find out the precise part of the land or the specific titles that are truly being released from the registration.
- Participation financing
- In lending business, the term participating financing, also known as loan syndication, refers to the partnership among lenders to allocate a loan or a package of loans that may be too large for any one of them to deal with individually. Occasionally, such loans, also called participation loans or syndicated loans, engage several banks spread across the globe.
In the context of real estate, the term participating financing denotes an exceptional purpose funding that entails the lender in express involvement with the borrower in some earnings or ownership arrangement for a specific undertaking. Usually, participation mortgages are made use of in a tight monetary situation and when the interest rates are exorbitantly high. For instance, it is possible that a lender will fund a participation mortgage because of lessening the actual interest rate charged, enhancing the principal mortgage amount to the borrower and/ or lengthening the period of time. In return, the lender will be receiving a fraction of the investment or a part of the earnings obtained by the borrower. On the other hand, the lender may even ask for a proportional sharing in the gross sales activity.
- Payback period
- In simple terms, the expression payback period may be described as the time needed to repossess an investment or loan. In business and economics, the term payback period refers to the period of time required for the return on an investment to 'repay' the sum of the initial investment. Though payback period is basically a financial expression, the theory of a payback period is sometimes broadened to other uses, such as energy payback period denoting the period of time over which the energy savings of a project equal the amount of energy used up since the inception of the project. However, such other terms may not be standardized or widely used.
In the context of real estate, the term payback period is a conventional criterion utilized to evaluate the aptitude of a specific investment property to return the original resources invested by means of cash flows. Often, the payback period is considered to be an approximate amount of risk related to a specific investment property. It is interesting to note that there is no official or prevailing method to compute the payback period, the term payback usually denotes the duration of time needed for an industrial, commercial or investment property to get back original investment by means of anticipated cash flows before the subtraction of taxes on the basis of a one-year projection.
Although the one-year projection is widely accepted as the base for analysis, this procedure does not recognize the universal hitch of varying cash flows during the succeeding years. As a result, real estate practitioners who are looking for more precise payback computations may approximate individual annual cash flows before deduction of taxes for an estimated holding time, for instance, a five-year to 10-year phase. Nevertheless, this strategy is also restricted because cash flows in future are not marked down to correctly reveal cash flows vis-à-vis the present dollars. Considering the restrictions associated with accurately computing the payback period, discounted cash flow examinations have been widely accepted by the real estate practitioners during the last few of years.
- Payment schedules
- The term payment schedule denotes a calendar or arrangement according to which payments are made to a
contractor (service provider) or creditor (lender).
- Percentage of value pricing
- The phrase percentage of value pricing refers to the practice of establishing the entire outstanding amount on a reverse mortgage on a proportion of the value of the home at the time of the loan's maturity.
- Periodic cap
- In real estate, the term periodic cap denotes the limit imposed on the amount that the interest rate of an adjustable mortgage may raise or fall during one adjustment period.
- Piggyback mortgage
- The phrase piggyback mortgage refers to a second mortgage that concludes concurrently with the first mortgage to lessen the overall required down payment or deposit. In other words, a piggyback mortgage denotes a category of mortgage loan where a borrower secures a second mortgage or loan on his or her home equity simultaneously with the refinancing of the first mortgage. Normally, piggyback mortgages are taken to lessen the loan-to-value quotient (LTV) of a first mortgage to below 80 per cent and in doing so, the borrower is able to get rid of the requirement for a private mortgage insurance (PMI).
- The term points is defined as the finance charges paid by the borrower during the opening period of a loan and one point is deemed as one per cent of the total loan amount. In other words, points, also known as a loan's origination fee, refer to the interest fees paid in advance when a borrower closes on a credit. For a loan worth $100,000, one point costs $1,000. In simple words, the additional points a loan has, the lower the interest rate would be. In fact, all the points paid on a purchase mortgage may be deduced in the same year they are paid. In the event of refinancing a mortgage, the points that a borrower pays at the time of refinancing ought to be amortized or spread out over the entire term of the loan. For instance, if a borrower obtains a 30-year loan while refinancing the mortgage, then he or she is able to only minus one-thirtieth of the points on their taxes every year.
- Portable mortgage
- A portable mortgage refers to a mortgage loan that enables the borrower to pass on the amount as well as the stipulations to another property without having to pay any additional expenses or penalty. In this case, the mortgage needs to be registered on the title of a new property. Hence, in other words, the two mortgages -- first and the second one - are not the same in every manner. Although majority of the mortgage plans include manoeuvrability aspect, in case a borrower requires more money when he or she transfers the mortgage over to a new property, they should ensure that they are either entitled to bring together any finance needed or are able to arrange the extra money individually.
- Generally speaking, the term postponement denotes the option of neither taking up a project nor cancelling it, but delaying it. In fact, postponement is a business approach that helps to obtain the highest possible benefits and at the same time, diminishes the risks by delaying any additional investment into a product or service till the last feasible minute. In the context of real estate, the expression is related to mortgages in which the mortgagee (lender) consents to uphold a position of ensuing precedence if there is a case of rescheduling and re-listing of a previous mortgage.
In other words, a mortgage agreement may incorporate a postponement clause according to which the mortgagee concurs to preserve the status of a subsequent priority and allow the mortgagor (borrower) to recommence or substitute an active mortgage that is payable prior to the maturity date of the mortgage registered on a later date. A postponement clause that is prepared appropriately ought to also offer the facility of paying in reduction of principal outstanding as per the later registered mortgage if there is any augmentation in the principal loan amount of the renewed or replaced mortgage.
- Power of attorney
- In law, the phrase power of attorney denotes a legal document that makes it possible for one person (called a principal) to designate another, called the attorney in fact, to function on his or her behalf till such time when the former is not rendered inoperative or becomes incapacitated. While a general power of attorney authorizes a person to act generally on behalf of the principal, a special power of attorney is only restricted to a particular action or situation. Any decision taken or action initiated by an attorney in fact is legally obligatory on the principal provided the attorney in fact is within the scope of his or her authority. There has been a new addition to the term power of attorney and the introduction of the perception of enduring power of attorney has made it possible for a principal to authorize an attorney in fact to act on his or her behalf even in the instance of them becoming incapable to doing so by them. However, the provisions in the enduring power of attorney include a number of safeguards. In the context of real estate, the processes for the listing of powers of attorney in the land registry offices differ from one provincial jurisdiction to another.
- Power of sale
- The power of sale clause is at times incorporated in a mortgage agreement or deed of trust that awards the lender or the trustee the privilege and power to sell the property when there is a default in the payment of the loan. The lender or the trustee is entitled to advertise the sale of the property and sell it at a public auction without seeking authorization from a court of law for his or her action. When the lender has paid out of the net earnings from the sale of the property, the ownership of the real estate asset is transferred to the purchaser through a deed. In the event there is any surplus amount from the sales proceeds, it is handed over to the borrower. This way, the borrower no longer has any right over his or her property and is also unable to redeem it. In this case, the borrower is unable to recover his or her property even if they repay the entire outstanding amount of the mortgage loan.
- Pre-approved buyer
- In the context of real estate, the term pre-approved buyer refers to a lender approving the application of a buyer or mortgagor with the objective of granting a mortgage loan conditional to particular stipulations. Over the years, pre-approved mortgage funding has turned out to be extremely popular and its acceptance is increasing by the day. The reason behind this is the fact that pre-approved mortgage financing augments the bargaining power in the real estate market. In this case, the buyer almost turns out to be a cash buyer depending on the stipulations of the pre-approval or the lender's authorization from before. Though there is no typical pre-approval form in existence, the majority them are expressed by a validation certificate defining the utmost sum that may be borrowed, the rate of interest chargeable on the loan amount and assured for a predetermined time period as well as the monthly payments to be made by the buyer/ borrower. It may be mentioned that in this case the affirmation is dependent on an evaluation of the real property that is being mortgaged.
- Pre-approved mortgage
- The phrase pre-approved mortgage refers to an assurance from the lender to offer a mortgage loan on fixed conditions to a borrower even before the borrower has identified a property that he or she wants to purchase. A pre-approved mortgage enables the borrower to make a definite cash offer on any property of his or her preference. In addition, it functions as a rate hold, ensuring the borrower that the present interest rates will be applicable to the mortgage loan for a period of 120 days from the day the pre-approved mortgage is sanctioned.
- Pre-payment penalty
- The term pre-payment penalty, also known as the breakage cost, refers to an extra fee required by a number of loan agreements where the borrower pays off a loan prior to its planned pay-off date. In fact, the pre-payment penalty daunts borrowers from making extra payments on their mortgage loan principal amount with a view to clear the loan faster. Pre-payment penalty is meant to recompense the lender for not obtaining the estimated interest income and for the prospect of plowing back the loan amount at a lower interest rate. Usually, the pre-payment penalty is equal to three months of interest on the loan. Hence, it is advisable that borrowers should avoid mortgages that fine pre-payment.
- Prepayment privilege
- In the real estate context, the term prepayment privilege, also called prior redemption privilege, refers to the right granted to a mortgagor (borrower) to repay the total or a part of the loan before its maturity date without having to pay any penalty. However, in this case, the borrower is not allowed to coerce the mortgagee to accept any payment save for those that have been initially agreed upon. Including the prepayment privilege clause in a mortgage agreement serves as an benefit for the borrower as he or she is able to pay of the entire existing loan or a part of it when the interest rates are low and after that seek a refinance at a more advantageous interest rate.
- In the context of real estate, the term pre-qualification refers to the procedure of establishing the amount that a potential home buyer may be eligible to borrow before he or she has actually applied for a loan. It is actually an informal method by which a lender approximates the size of the mortgage loan he or she is willing to make depending on a number of preliminary credit and income data pertaining to the borrower. Unlike in the case of pre-approval that is an actual agreement to make the loan, the estimate done during pre-qualification is neither binding nor inevitably correct, as the lender is yet to verify the financial information provided by the borrower.
- Pre-approval denotes a practice followed by the lender in approving a certain loan amount to the borrower. Considered to be a far more scrupulous procedure compared to pre-qualification, pre-approval is done by mortgagees to decide on the amount of loan they should approve and this entirely depends on the financial status of the borrower. This process actually assesses the borrower's capability to repay the loan. When a borrower obtains a pre-approval letter from the lender, it makes his or her negotiating position stronger while purchasing a home, as it demonstrates the seller that the buyer is serious about making the purchase and also established their credit value.
- In the context of real estate or lending business, the term principal, also known as principal amount, is the amount borrowed by a person. The term also denotes a fraction of the borrowed amount that is still due. The principal does not in any way include the interest fees on the borrowed amount.
- Private Mortgage Insurance (PMI)
- Private mortgage insurance, also known as mortgage default insurance, refers to the mortgage indemnity made available by non-government insurers to shield a lender against any financial loss if the borrower defaults on a mortgage loan. In the event of the first installment or payment of a borrower or mortgagor is less than 20 per cent of the purchase price of the home he or she intends to buy, it is probable that they would be required to purchase private mortgage insurance (PMI). It may be noted here that the lesser the down payment, more is the likelihood of a mortgagor or home buyer to default on a credit. Private mortgage insurance is not beneficial for the borrowers, as it may increase their loan expenses by hundreds of dollars each year. However, if the equity of a mortgagor is 20 per cent or more in the home, he or she does not require purchasing private mortgage insurance. Borrowers are advised not to confuse private mortgage insurance with mortgage life insurance.
- Pro forma statement
- In brief, the phrase pro forma statement, also called projected statement, may be defined as a projection or estimation of the income and expenses in future. In other words, it refers to a financial statement depicting the estimated operating outcomes or influence of a particular deal or contract as in the case of pro forma income statements in the continuing financial plan. A pro forma statement actually denotes the estimated or projected economic statement that endeavours to offer a reasonably precise idea of what a business' financial condition would be if the current tendency continues or specific suppositions remain in effect. Pro forma statements are usually made use of in getting ready 'what if' situations, drawing up business plans, projecting cash requisites or while submitting funding offers.
- Property tax
- The expression property tax refers to a local tax evaluated on real estate asset owned. In other words, it is an annual tax paid by the home owner evaluated on the home. Usually, property tax is evaluated around one to two per cent of the value of the home.
- Property tax accounts