Glossary of Terms
Essential terminology used in real estate notes, owner financing, and mortgage investing.
Key Terms & Definitions
Amortization
The gradual reduction of a debt through scheduled principal and interest payments.
Assignability
The legal right to transfer or sell a promissory note or income stream to a third party.
Balloon Payment
A large, final lump-sum payment due at the end of a loan term that pays off the remaining principal.
Collateral
An asset (like real estate) pledged to secure a loan. If the borrower defaults, the lender can seize the asset.
Deed of Trust
A legal document that transfers property title to a third-party trustee as security for a loan.
Due-on-Sale Clause
A mortgage provision allowing the lender to demand full repayment if the property is sold or transferred.
Escrow
A third-party arrangement that handles the exchange of funds, documents, and tax/insurance payments.
Face Value
The current outstanding principal balance owed on a promissory note.
Foreclosure
The legal process a lender uses to repossess a property when a borrower defaults on their payments.
Land Contract
An owner-financing method where the seller retains legal title to the property until the loan is fully paid.
Lien
A legal claim against a property that secures the payment of a debt (e.g., a mortgage).
Promissory Note
A legally binding written promise to repay a debt under specific, agreed-upon terms.
Title Insurance
Insurance protecting lenders or buyers against financial loss due to defects in the property's legal title.