A long-term bond or note issued by governments and/or corporations and not secured by a mortgage or lien on any specific property. Since there is no specific property securing the debenture, the ability to repay the debt is based solely on the financial strength of the issuer.
Debt Service Coverage Ratio [DSCR]
The relationship between the annual net operating income (NOI) of a property and the annual debt service of the mortgage loan on the property. Both Lenders and Investors calculate this ratio to assist them in determining the likelihood of the property generating enough income to pay the mortgage payments. From the lender's viewpoint, the higher the ratio, the better.
The periodic payment (monthly, quarterly, or annually) necessary to pay the interest and principal on a loan, which is being amortized over a longer term (usually 25-30 years).
Deed of Trust
The deed to real property, which serves the same purpose as a mortgage but instead of two parties, three parties are involved. The third party holds title for the benefit of the Lender. The Lender is called the “Beneficiary”. The Borrower is called the “Trustor”. When a loan is made, the Borrower conveys title to a third party called the Trustee who holds the title for the benefit of the Lender (although the instrument itself may remain in the Lender's possession).
In defeasance, the lender replaces the cash flows of the original loan with actual Treasury Securities. The borrower pays the lender enough money to buy these securities and the lender goes out in the bond market and buys the right combination of bonds. After this is done, and the lender has a security interest in the treasuries, the property is released as collateral for the loan and the treasuries become the new loan collateral.
The rate of interest charged to banks that buy money from the Federal Reserve System. An increase in the rate not only discourages the banks from borrowing, but it also serves as a signal that interest rates are probably going to increase. Also, a compound interest rate used to convert expected future income into a present value income.