Definitions of Commercial Loan Words

[Russell Gronsky]

Sorry if these terms have been covered but when I do a search for "lockout", I get a lot of eviction posts, not much on financing. So, hopefully, all you savvy commercial multi-family investors can help out a newbie to the commercial scene.

I'm looking at a Freddie Mac Small Balance Loan and there are a few words I haven't come across in residential RE. What do these words mean:

- One of the terms Freddie boats is "coupon pricing". What is this?

- Another benefit Freddie talks about it is "declining prepayment". No idea what this is?

- As I was researching declining prepayment online, I found a Fannie Mae document that says they offer declining prepayments in several options, like a 10-year loan with a 5-5-4-4-3-3-2-2-1-1 declining premium with no lockout period. What is a lockout period? And finally, what does that statement mean with a 10-year loan with 5-5-4-4....etc?

I realize these are newbie questions and I'm sorry for peppering the forums. Any help would be greatly appreciated.

[Sam Grooms]

Correct, no one pays off the balloon payment. You either sell or refinance before that time. The 30 year amortization just allows you to actually cash flow for the 10 years of the loan.