Loan Structure
Loan Structure
Encyclopedia terms, articles, and lessons about loan structure.
Encyclopedia Terms
Abandonment
The voluntary relinquishment of rights of ownership by failure to use the property, coupled with intent to abandon (give up the interest).
Acceleration Clause
Mortgage stipulation which gives the lender the right to demand payment in full upon the happening of a certain event, such as default or destruction of the property.
Accrued Interest
Interest on a note that has been earned by investor but not paid, does not necessarily indicate a delinquency in payment.
ACH Payment
Automated Clearing House - electronic payment taken from one bank account to another, typically preferred by performing note investors.
Amortization
A payment plan which enables the borrower to reduce debt gradually through monthly payments of principal and interest over time.
Amortization Schedule
Table showing how much of each payment will be applied toward principal and how much toward interest over the life of a loan.
Annuity
Income from investment paid in a series of regular payments.
APR (Annual Percentage Rate)
Calculated according to a government formula intended to reflect the true annual cost of borrowing, always higher than the actual note rate.
ARM (Adjustable-Rate Mortgage)
A loan with an interest rate that changes periodically in keeping with a current index, typically starting with a lower rate.
Arrears
The state of being behind in payments, also refers to the amount of interest past-due.
Balloon Mortgage
A mortgage loan with lower payments that requires one large payment due upon the maturity date, typically at the end of five or seven years.
Billing Statement
Monthly bill sent by a lender/loan servicer to borrower providing a summary of activity on an account, including balance and payments made.
CLTV (Combined Loan to Value)
A calculation which expresses the amount of all secured debts attached to a property as a percentage of the total value.
Convertible ARM
An Adjustable Rate Mortgage loan that can be converted to a fixed-rate during a certain time period.
Debt Service
The amount of money owed to pay all liens secured by a subject property.
DTI (Debt-to-Income)
A calculation used by mortgage companies to qualify borrowers, calculated by dividing gross monthly income by their debt service.
Due-on-Sale Clause
Provision in a mortgage that allows the lender to demand repayment in full if the borrower sells the property serving as security.
Escrow
An item of value, money, or documents deposited with a third party to be delivered upon the fulfillment of a condition.
Escrow Account/Escrow Agent
The account or third party agent where the escrow funds or collateral documents are held to facilitate a transaction.
Escrow Analysis
A periodic review of escrow accounts to make sure that there are sufficient funds to pay the taxes and insurance on a home.
Executor
The person or entity named in a will who has the responsibility of carrying out the terms of the will.
Face Value
The balance owed on a note.
Fannie Mae (FNMA)
The Federal National Mortgage Association, the nation's largest supplier of home mortgage funds.
FDIC
Federal Deposit Insurance Corporation.
Federal Housing Administration (FHA)
An agency of the U.S. Department of Housing and Urban Development that insures residential mortgage loans made by private lenders.
First Mortgage
Also called a Senior Lien, the mortgage that will be paid before any other recorded loans in the event of liquidation.
Fixed-Rate Mortgage
A mortgage loan in which the interest rate remains the same for the life of the loan.
Forced Placed Insurance
Insurance placed on a property to protect the lender's interest when the borrower has let their insurance lapse.
Grace Period
A period of time after the due date of a loan in which payments may be made and not considered delinquent.
Hard Money Loan
A high-interest loan originated by private individuals based primarily upon the property equity.
HELOC (Home Equity Line of Credit)
A line of credit that's based on a percentage of the equity in a property, typically originated as a junior lien.
Interest-Only Mortgage
A mortgage where the homeowner pays only the interest on the loan for a specified amount of time.
Junior Lien
A mortgage debt in a subordinate position, typically in second position but may be behind more than one other lien.
Lien
A claim against a property that affects the property owner's ability to transfer ownership to another party.
Lien Position
Lien position determines the priority in which mortgage holders are paid from the proceeds of a property sale or foreclosure. First lien holders are paid before second lien holders, making lien position one of the most important factors in mortgage note pricing and risk.
Line Of Credit
A loan where an owner uses equity in their property as collateral for a loan which permits the draw of funds up to a preset amount.
Maturity Date
The date included on the mortgage document in which the borrower promises to repay the remaining balance due.
Mitigated
Make less severe.
Mortgage
A lien against property to secure a loan, recorded in the county records.
Mortgage Insurance
Insurance that protects the mortgage company against losses caused by a homeowner's default on a mortgage loan.
Prepayment
To pay off all or part of a debt early.
Prepayment Penalty
A fee stipulated in some notes that may be charged to a borrower if the loan is paid off early.
Promissory Note
A promise to pay, a document signed by the borrower to the lender.
Refinance
A new mortgage with new terms, the new loan pays off an existing debt.
Repayment Plan
A borrower's promise to pay arrears due on a mortgage over a specified time period while still making regular monthly payments.
Senior Lien
A mortgage having claim before any other lien or mortgage, also called a first mortgage.
Tax Lien
A claim against a property which may be sold by the taxing authority arising out of non-payment of taxes.
Unpaid Principal Balance
The unpaid principal balance (UPB) is the remaining amount of original loan principal that has not yet been repaid. UPB is the primary unit of measure in whole loan trading and the denominator against which note prices are quoted.
UPB (Unpaid Principal Balance)
The current balance owed by a borrower on a mortgage note.
Articles
February 10, 2026
ArticleWhy Lien Position Matters When Buying Notes
Lien position determines your priority in a foreclosure and directly impacts pricing, risk, and available exit strategies.
January 1, 2026 · Ep. 18
PodcastLegal Framework: Mortgage, Note, and Assignment
Paperwork isn’t “admin” in note investing — it’s the asset. If you don’t control the note, the lien, and the transfer trail, you’re not buying enforceable debt… you’re buying a story someone told you at closing.
December 30, 2025 · Ep. 17
PodcastThe Role of Equity and CLTV
Equity is more than a feel-good metric in note investing — it’s leverage, protection, and optionality. If you don’t understand how much real collateral coverage exists across the entire lien stack, you’re not underwriting a deal… you’re guessing how the borrower will behave when pressure hits.
December 25, 2025 · Ep. 16
PodcastUnderstanding Collateral Value
Understanding the true value of collateral is the cornerstone of safe, profitable note investing — because collateral is what ultimately protects your downside when everything else goes wrong. If you misjudge value, you’re not just mispricing a deal — you’re gambling with your capital.
December 23, 2025 · Ep. 15
PodcastUnderstanding Loan Amortization
Understanding loan amortization is foundational to smart note investing — because cash flow, risk, and exit strategy are all shaped by how a loan actually pays down over time. Without modeling it, even experienced investors can misread equity, yield, and exposure.
November 20, 2025 · Ep. 6
PodcastAnatomy of a Mortgage Note
If you don’t understand the paperwork, you don’t understand the investment. In this episode, we dissect the core documents behind every mortgage note deal — and explain what each one means for your rights, risks, and returns.
November 18, 2025 · Ep. 5
PodcastLien Position - 1st vs 2nd Explained
Not all mortgage notes are created equal — lien position makes all the difference. In this episode, we break down the difference between 1st and 2nd lien mortgage notes, and how each position changes your strategy, your risk, and your potential return.
November 13, 2025 · Ep. 4
PodcastMeet the Collateral - The Lifecycle of a Note
You’re not just buying paper — you’re buying a contract backed by real property. In this episode, we walk through the full lifecycle of a mortgage note, from origination to resolution, and explain what collateral really means in this business.
November 6, 2025 · Ep. 2
PodcastWhy Banks Sell Mortgage Notes
Banks lend money — they don’t chase borrowers. In this episode, we break down why banks sell mortgage notes (often at a steep discount) and how investors like you can step in to profit.