Mini-Finance Glossary

Mini Finance Glossary here! When dealing with real estate finance, do you know the context that words you've heard before really mean, in terms of buying a house? It'll help if you do. It's part of the reason so many are losing their shirts in the foreclosure status quo. Don't you be next!
Any of these look familiar?

Acceleration Clause: Ok. This means, essentially, that if you as the borrower can't, won't or don't pay your loan back --in the way you said you would (and by 'said' I mean your signature), then you agree that the whole and entire amount of money you owe is now due. Right this minute! All promissory (not promissary) notes have an implied acceleration clause, even if it's not spelled out. Keep that in mind.

Due On Sale Clause: Alrighty, this is saying you agree that you won't sell your house (or whatever property the clause is being applied to). Very similar to the above mentioned acceleration clause. The lender is asserting their right to get (from you, right now!) all the money you owe IF YOU SELL. So, if you see this in your contract, it's easy -- don't try to sell it without the lender knowing. If you do, you owe all the money you were paying on a monthly basis, immediately! Basically, all loans have to be paid off when sold (ideally). A mortgage is a loan, and therefore, due when and if that happens. Now, it's the lender's choice whether or not to enforce it. But usually, they do.

In Lieu of: okay, this pretty much means the same in or outside of the real estate context. It means 'instead of.' As in "deed 'in lieu of' foreclosure." (The lender will take the property subject to any and all junior liens).

Discount Points: Interest (the money you pay for the privilege of borrowing money) that you pay UP FRONT. The lender's saying "If you pay me some more interest now, you can pay me less interest later." That's what they're saying, so just know that.

Points you pay are the same on virtually all loans. The word 'yield' equals... profits! For the lender. Points are paid to include yield to the lender. So it's almost like you want to increase their yield on the front end to sort of entice them to like, totally lower the ultimate profit they really want to get later! My opinion? Don't pay points. Like, ever. UnLESS -- you can talk the seller into paying them; if you're that clever, then I guess it's ok, isn't it?

And...

One discount point's gonna lower the rate of interest 1/8th a percent. So of course the opposite's true.
One point conversely raises the yield one-eighth of a percent (of the loan amount). So to wrap, points are just a percent. Of the loan.

Mmkay.

Let's move on.

Capital Gains: A gain is an advantage right? A positive sounding thing, to be sure. Well it is in this arena too. A gain from the the sale of real property (real property means: not personal property, or, believe it or not, 'personalty' and 'chattel') anyway, a gain is called a capital gain when a person sells realty for more than they paid for it.

If you sell anything and get more for it than what you originally paid, you are said to have 'realized' a gain. Now, the profits realized from the sale OR exchange of real property, are taxed. Those profits are taxed as ordinary ol' income IF IT'S A SHORT TERM capial gain. Short term is defined as twelve months or less. The maximum tax rate that applies to long term capital gain is fifteen percent. Long term being held longer than twelve months.

Fun things can happen when when you get the knack of exchanging your property for another, VERY SIMILAR, property. Oh sweetness in store... Like, for one, you don't have to pay capital gains on that exchange. The name for this situation is ten thirty-one. It's 1031 because that is the number of the Internal Revenue Service's code for it. So, check with them before attempting to do this. Consult with them before even thinking of attempting to do this! Very similar is in reference to the fact that the two items of property are very alike in nature, even if they don't exactly look alike so much, and therefore are referred to as 'Like-kind' exchanges.

After talking with them, and a really good lawyer, it can be very cool a thing to delve into.

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