Glossary - S

Safe rate: The term safe rate refers to an interest rate offered by comparatively low-risk investment like prime bonds or well-secured first mortgages. In the context of real estate, safe rate is usually utilized in computing special rates of return concerning income generating property. In this instance, the interest is generated by an investment vehicle at market rates and the funds are very volatile and can be withdrawn without any deduction or fine concerning the principal or the interest. The treasury bills are among best example of using safe rate.
Commercial practitioners use safe rate while computing the modified internal rate of return (MIRR) or the financial management rate of return (FMRR). Funds like these are withheld till they are required to cover negative cash flows while scrutinizing anticipated variable cash flows in real estate venture. When one is using a safe rate, it helps to permeate drawbacks related to the internal rate of return (IRR).
Safety margin: In the context of mortgage lending, the term safety margin denotes a type of financial collateral that is brought into play to cover credit risks. In fact, the safety margin corresponds to a dollar or a proportionate aspect that lessens the financial risks of a lender on the borrowed out money. It serves as a financial protection between the liabilities of a property owner to pay back the annual debt service and the projected net operating earning from the property on which the mortgage loan is being secured. In this case, the lender seeks out added protection to make sure that not each dollar of the net operating income is spent on repaying the mortgage loan. In fact, usually a lender has the need for a safety margin while taking an income property into account in commercial mortgage prerequisite.
Secondary mortgage market: The expression secondary mortgage market refers to a sector of the mortgage marketplace where mortgages are resold and not originated. In other words, it denotes a market where existing mortgages are purchased and sold as per the value of cash flows in future. The secondary mortgage market is exceptionally big and here mortgages are often clustered into different categories on the basis of their size, structure, and risk. Afterwards they are sold as a collateral debt obligation, mortgages endorsed by security or any other kind of by-product.
Satisfaction: The term satisfaction denotes approval of one or both parties on the conclusion of a responsibility. In other words, it refers to the approval of the client or customer when comparing a product or service's recognized functioning with his or her anticipations. The expression satisfaction also refers to execution, termination or fulfillment of a claim. Occasionally, substitution is equated with functioning; it also means compensation or substitution, while performance represents doing what had been really promised.
Second mortgage: A second mortgage refers to a mortgage on a real estate that has already been pledged as a security or collateral for a pervious mortgage. In other words, it denotes the loan obtained by a home owner against his or her equity in a property (market value of the property minus outstanding payment on the first mortgage loan) that has already been mortgaged. Second mortgages are also called subordinate mortgages as the rights in this case remain inferior to the first mortgage. As the second mortgage would get reimbursements only after the first mortgage has been settled, the rate of interest on the second mortgage is usually higher and even the amount sanctioned as loan is less than the first mortgage. Moreover, in the event of a foreclosure sale, the second mortgage is only paid out following the complete satisfaction of the first mortgage. In fact, both the mortgages run at the same time and usually, the second mortgage has a shorter maturity period compared to the first one.
Securitization: In the real estate context, the term securitization refers to the allocation of default risk by clustering debt liabilities, such as mortgages, into a group and selling the securities supported by this pool afterwards. In other words, securitization denotes the procedure of developing a financial method by merging other financial assets and then marketing them to the investors. A relatively new term, "securitization" is derived from the fact that the form of financial instruments used to obtain funds from the investors is securities. In other words, the term denotes loans organized between lenders and borrowers in the primary mortgage market are securitized or put together as mortgage investment portfolios and sold to the depositor groups on the secondary mortgage market. As a result of securitization even small investors are able to take part in the larger mortgage market and collect profits, which they would not have been able to do in their individual capacities otherwise. Usually, a mortgage portfolio that may total to around $5,000,000 in terms of mortgage loans is securitized or split into smaller investment entities, for instance, $5,000 every unit, and sold in the secondary mortgage market.
Settlement (Closing): In real estate matters, the term settlement or closing denotes the finalizing of the sale of a property as the ownership of the real estate asset is conveyed from the seller to the buyer. In fact, settlement also refers to the procedure of amending and concluding all transactions, money and agreements for real estate sellers and buyers. During settlement, all amendments or adjustments are done as on the precise date of the closing, all funds are paid out appropriately and the ownership document or deed is set up with the new owner's name and the real estate is transferred as per the terms and conditions mentioned in the agreement and the objectives of the parties concerned in the deal.
Shared appreciation: In the context of real estate, the term shared appreciation, also called the shared equity loan, refers to a mortgage generally arranged at interest rates that are below the prevailing market rates with a view to allow the lender or mortgagee a part of the raise in the value of the mortgaged property in a stipulated time. When the mortgage matures, the borrower or mortgagor ought to either sell the real estate asset or pay the lender his or her share of the appreciation in the value of the property, if any. In short, the term denotes detailed reverse mortgage loan expenditure founded on a per cent of any raise in the value of a property for the duration of the loan.
Shared equity: In real estate, the term shared equity refers to a particularized reverse mortgage expense that relies on a per cent of a property's worth during the time of the loan's maturity. In other words, it denotes a home loan where the mortgagee or lender is conceded a part of the equity thus enabling him or her to partake in the earnings form the resale of the property. Following the fulfillment of the due balance of the loan, the borrower or mortgagor divides the remaining earnings from the resale with the lender. In the instance of shared equity, it is essential for the mortgagee to purchase a segment of the equity by offering a part of the down payment.
Sinking fund: A sinking fund refers to a reserve created by setting aside equal sums of money in a custodial account, such as cash or savings in marketable securities, periodically for replacing an asset or repaying a liability in future. Usually, a sinking fund engages equal monthly or yearly deposits that with compounded interest accrue to a fixed sum at the end of a stipulated time. Occasionally, sinking funds are applied in the instance of rental properties where the owner reserves a particular deduction from income to counterbalance decline in the value of the real estate. The savings are added in the endowment and then used to rectify the depreciation. In fact, sinking funds also form the base of reserve endowments made use of by condominiums to save funds for replacing common building blocks in future.
Standby fee: In real estate context, standby fee refers to an amount paid by the mortgagor or borrower to the mortgagee or lender to keep up a mortgage obligation for a particular period. This mortgage commitment, occasionally also called as a standby commitment, is actually an assertion that the lender possesses an identified amount of money for the purpose of lending to the particular borrower on stipulations as mentioned in the commitment letter. It may be noted here that the sum may be forfeited in case the loan is not closed within a particular period.
Standby loan: Generally speaking, the term standby loan, special purpose credit or standby commitment, refers to an assurance given by a lender to provide a sum of money at specific terms for a particular period. Such an understanding is founded on a common perception that the loan facility will not be used, but for circumstances warranting, and that the borrower can cancel it at anytime. Usually standby loans are used to make sure the availability of essential funds subsequent to a catastrophe, or to acquire construction financing at a lower interest rate on the assurance that permanent financing will be made available when a project is complete and generating income.
In matters pertaining to real estate, standby loan denotes a loan commitment set up between a lender and a developer prior to commencing construction for initial funding. A standby loan is just the opposite of a more enduring mortgage loan. Real estate practitioners come across the term standby loans very often in improvement projects. The lenders are engrossed in this type of arrangement as they not only receive an upfront payment, called standby fee, but the interest rate too is usually two to four points higher compared to other mortgage plans. On the other hand, a standby loan enables a developer to continue with the constructing financing and get extra time to obtain a more profitable permanent mortgage loan for any specific project. In fact, the standby loan is actually a type of warranty of credit for any real estate project. Developers seldom utilize a standby loan, except when the interest rates are exorbitant, but are anticipated to fall prior to the completion of their project. Even if a developer uses a standby loan, he or she terminates it for more favourable interest rates proffered permanent lenders some time in future.
Statement of mortgage: The term statement of mortgage denotes a report dent to the mortgagor by the mortgagee's servicer providing details of the interests and points the former has paid during the previous year as well as the remaining principal balance of the loan. The statement also includes the terms of the mortgage loan and is usually completed, signed and handed over by the mortgagee's broker to the borrower for his or her signature prior to the borrower being asked to sign a mortgage document or any pledge to enter into a mortgage. It may be noted that the requirements for the statement of mortgage varies from one province to another.
Stock market: The term stock market, also called stock exchange, denotes a public market where company stock and derivatives are traded at an approved prices. In other words, the term refers to the organized trading of stocks and securities through exchanges as well as over-the-counter (privately).
Subjective value: In real estate matters, the expression subjective value, also called personal value, refers to the worth of an asset on the basis or associated with the property's capability to satisfy desires or wants. Subjective value is said to be generated and subsists in the minds of the prospective sellers and buyers and is the worth that people would pay for a property, whatsoever be its cost, as distinguished from the targeted worth where value is related to the price of creating or producing the real estate.
Normally, real estate evaluators make use of the subjective value in direct comparison method as well as the income approach. In effect, the subjective value of a property governs the real estate assessment, as it may prove to be virtually insignificant as to the costs related to the development of a property. Value is gauged measured by means of the current worth of all the prospective benefits that would possibly accumulate through proprietorship. It may be noted that it is not essential that the prospective benefits would signify money or an income flow. In the instance of residential properties non-monetary advantages may comprise subjective aspects like the pleasure of living in a house or other amenities such as a park or a forest reserve nearby.
Subject to: Generally speaking, the expression 'subject to' denotes an offer or an agreement that relies upon individual situation or action. The use of the term 'subject to' in a document usually checks it from being a confirmation of approval and, therefore, of a transaction that may be deemed concluded.
Survey: In matters pertaining to real estate, survey denotes a map or a plan chalked out by an authorized surveyor following the measurement of a plot of land to illustrate its region, borders, contours, altitudes, improvements as well as its correlation with the surroundings. It also reveals other important information concerning a real estate asset and substantiates that a particular plot of land or construction is located as per its authorized portrayal.