Real Estate Jargon # 6 - Bi weekly mortgage:
Bi weekly mortgage is a type of mortgage in which you make payment every two weeks, instead of once in a month. The basic result is that instead of making 12 monthly installments in a year, you make 13 installments in order to reduce the principal, subsequently reducing the time it takes to pay off a thirty year mortgage. There are independent companies that encourage you to set up bi weekly payment schedules with them on your thirty year mortgage. They charge a set up fee and transaction fee for every payment. Your funds are deposited into a trust account from which your monthly payment is then made and the excess funds then remain in the trust account until enough has accrued to make the additional payment which then be paid to reduce your principal.
Real Estate Jargon #7 - Amortization:
Amortization is the process of decreasing or accounting for an amount over a period of time. The word comes from Middle English “amortisen” to kill. It is a process of distributing the lump sum cash flow into many small cash flow installments, as determined by a schedule. Unlike other repayment models, each repayment installment consists of both principal and interest. Amortization is mainly used in loan repayments and sinking funds. Payments are divided into equal amounts for the duration of the loan, making it the simple repayment model. A greater amount of payment is applied to interest at the beginning of the schedule, while more money is added to the principal at the end.
More Information on Residential Real Estate Property
The loan payment consists of a portion which will be applied to pay the accruing interest on a loan, with the reminder being applied to the principal. Over time the interest amount decreases as the loan balance decreases. The amount applied to the principal increases so that the loan is paid off in the specified time.
Real Estate Jargon #8 - Appreciation:
Appreciation is the increase in the value of a property due to the changes in the market conditions, inflation or other causes. In any viable modern economy, such property tends to increase in value over the years – only because of the scarcity of usable land forces its prices in a competitive situation. However, this belief has often caused speculative bubbles to arise. There is a considerable difficulty in assessing the increase in value of a particular asset. This is only due to the variety of interpretations that can be attached to the word value itself and due to the various methods used in the valuation process.
Real Estate Jargon #9 - Depreciation:
Depreciation refers to the decline in the value of a property; the opposite of appreciation. Depreciation is also an accounting term which shows the declining monetary value of an asset and is used as an expense to reduce the taxable income. Since this is not a true expense where money is actually paid, lenders will add back depreciation expense for self employed borrowers and count it as income.
In simple words we can say that depreciation is the reduction in the value of an asset due to usage, passage of time, wear and tear, technological outstanding, obsolescence, depletion or other such factors. Depreciation and its related concept, amortization are non cash expenses. Neither depreciation nor amortization will directly affect the cash flow.
Details of Real Estate Projects
Real Estate Jargon #10 - Leasehold estate:
Lease hold estate is an ownership interest on land in which a lessee or tenant hold the real property by some form of title from a lesser or land lord. Modern lease hold estate can take one of the forms – The fixed term tenancy, tenancy for years, periodic tenancy, the tenancy at will and the tenancy at sufferance.
When a land owner allows one or more persons, called “tenants” to use his land in some way for some fixed amount of time, the land become a lease hold and the resident – land owner relation is called tenancy. A tenant pays rent to the land owner. The lease hold may include the buildings and improvements made to the land.