Intermediate terms

Essential Debt Management Terms

This curated collection includes key terms that might be helpful when exploring debt management and reduction strategies. It focuses on the vocabulary of debt and the methods for paying it down to enhance your financial profile for lenders and improve investment capacity. These terms were selected based on common questions and areas where investors often need clarity.

Learning Path

Home Equity Line of Credit

A Home Equity Line of Credit (HELOC) is a revolving line of credit secured by the equity in your home, allowing flexible borrowing and repayment up to a set limit.

Intermediate14-15 min

Debt Avalanche

The Debt Avalanche is a debt repayment strategy focused on paying off debts with the highest interest rates first, while making minimum payments on all other debts, to minimize total interest paid and accelerate debt elimination.

Intermediate5 min

Real Estate Refinancing

Real estate refinancing is the process of replacing an existing mortgage loan with a new one, typically to secure better terms, lower payments, or access property equity for investment purposes.

Intermediate15-18 min

Debt Service Coverage Ratio

The Debt Service Coverage Ratio (DSCR) is a financial metric used in commercial real estate lending to assess a property's ability to generate sufficient Net Operating Income (NOI) to cover its annual mortgage debt payments.

Advanced15-18 min

Leverage

Leverage in real estate is the use of borrowed capital, typically through mortgages, to finance property purchases and amplify potential investment returns.

Intermediate15-18 min

Debt Paydown

Debt paydown is the process of reducing the outstanding principal balance of a loan, such as a mortgage, over time. This gradual reduction builds equity and increases an investor's ownership stake in a property.

Beginner3 min

Fixed-Rate Mortgage

A fixed-rate mortgage is a home loan with an interest rate that remains unchanged for the entire loan term, providing stable and predictable monthly payments.

Beginner13-14 min

Refinancing

Refinancing is the process of replacing an existing mortgage or loan with a new one, often to secure better terms, lower interest rates, or access built-up property equity.

Intermediate15-18 min

Interest Rate

An interest rate is the percentage charged by a lender for the use of borrowed money, typically expressed as an annual percentage of the principal amount.

Beginner15-18 min

Qualifying Ratios

Qualifying ratios are financial metrics used by lenders to assess a borrower's capacity to repay a loan by comparing their gross monthly income to their existing debts and proposed housing expenses.

Intermediate6 min

FICO Score

A FICO Score is a three-digit number that summarizes your credit risk, used by lenders to determine your creditworthiness for loans, including mortgages.

Beginner12-13 min

Home Equity Loan

A Home Equity Loan is a type of second mortgage that allows homeowners to borrow a lump sum against the equity in their property, repaid over a fixed term with a fixed interest rate. It's often used by real estate investors to fund new acquisitions or property improvements.

Intermediate5-6 min

Loan-to-Value Ratio

The Loan-to-Value (LTV) ratio is a financial metric used by lenders to assess the risk of a mortgage loan, calculated by dividing the loan amount by the property's appraised value, expressed as a percentage.

Intermediate14-15 min

Bad Debt

Bad debt in real estate refers to rental income or other payments owed by tenants that are unlikely to be collected, directly impacting an investor's cash flow and profitability.

Beginner2-3 min

Credit Report

A credit report is a detailed record of an individual's credit history, including borrowing and repayment activities, used by lenders to assess creditworthiness.

Beginner14-15 min

Financial Profile

A financial profile is a comprehensive summary of an individual's or entity's financial health, encompassing income, expenses, assets, liabilities, and credit history, crucial for assessing creditworthiness and investment capacity.

Beginner5 min

Mortgage

A mortgage is a loan obtained from a lender to purchase real estate, where the property itself serves as collateral for the debt. Borrowers make regular payments, including principal and interest, over a set period until the loan is fully repaid.

Beginner15-18 min

Good Debt

Debt considered beneficial because it helps acquire assets that appreciate in value or generate income, ultimately improving financial health.

Beginner3 min

Interest

Interest is the cost of borrowing money, typically expressed as a percentage of the principal, or the return earned on invested capital. It is a critical factor in real estate financing, directly influencing loan payments, cash flow, and investment profitability.

Intermediate13-14 min

Debt Service

Debt service is the total amount of principal and interest payments required to repay a loan over a specific period, typically for a mortgage or other property-related financing.

Beginner11-12 min

Debt Consolidation

Debt consolidation is a financial strategy where multiple debts, often with varying interest rates and terms, are combined into a single, new loan, typically with a lower interest rate or more favorable payment structure.

Intermediate4-5 min

Underwriting

Underwriting is the process by which lenders assess the risk of lending money for a real estate transaction, evaluating the borrower's creditworthiness and capacity to repay, as well as the property's value and marketability.

Intermediate15-18 min

Amortization

Amortization is the process of paying off a debt over a set period through regular, fixed payments that gradually shift from mostly interest to mostly principal.

Intermediate12-13 min

Principal

Principal refers to the original amount of money borrowed for a real estate loan, or the remaining balance of that borrowed amount, excluding interest and fees. It is the core sum that directly reduces debt and builds equity.

Intermediate13-14 min

Debt Capacity

Debt capacity is the maximum amount of debt an individual or entity can prudently take on while maintaining financial stability and meeting repayment obligations. For real estate investors, it's a critical metric for assessing borrowing limits, managing risk, and planning portfolio expansion.

Intermediate5-6 min