Basis points are used to measure many financial instruments, including the fees, spreads and rates in commercial real estate finance.
Debt yield, is a measure of risk for commercial mortgage lenders. It takes into account the net operating income of a commercial property to determine how quickly the lender could recoup their funds in the event of default.
Debt service coverage ratio or DSCR, is a comparison between net operating income and debt service on an annual basis and is generally one of the most important considerations when a commercial mortgage broker, lender or bank is underwriting a loan.
Replacement reserves is a budget line item used by commercial property underwriters to address periodic maintenance on systems that wear out faster than the building itself.
A lockout is a restriction within the commercial real estate loan to prevent prepayment of the loan. If the loan is paid early then the lender will not benefit from the anticipated yield of the loan. For this reason, some commercial real estate loans will have a lockout period, which would be the minimum number of years in which the borrower cannot pay off the entire loan.
An FHLB (sometimes referred to as an FHLBank) or Federal Home Loan Bank is a region based bank that is part of a federally backed group of banks who provide housing finance and community investment loans. There are 11 FHLBs in total that provide reliable liquidity to financial institutions that are members of the program in order to support community investment and housing finance in the country.
Yield maintenance is a prepayment penalty on an existing commercial mortgage. It acts as a guarantee for the commercial property lender who made the original commercial mortgage, anticipating a set return over the full term of the loan. Unlike other prepayment penalties, yield maintenance covers the entire cost of the original lending agreement, compensating the lender fully for the prepayment of the borrowed funds.