Apartment Loan Glossary: Terms Lenders Use

Short answer

This glossary defines the terms owners of 5+ unit apartment buildings meet when they refinance or buy: sizing terms such as DSCR, LTV and debt yield, pricing terms such as SOFR and spread, and loan-document terms such as yield maintenance, defeasance, recourse carve-outs and rate caps. Each entry links to a full explanation.

How to use this glossary

A loan quote for an apartment building packs a lot into a few lines: a spread over an index, a DSCR minimum, an amortization period, a prepayment type, a recourse structure and a list of reserves. Each of those terms changes how much you can borrow, what it costs and how easily you can get out of the loan later. Misreading one is how owners end up comparing two quotes that are not really comparable.

The terms below are the ones that matter on financing for buildings with five or more units. Each entry is a short definition with a link to a fuller explanation on this site. Where a term drives a number, such as DSCR, debt yield, cap rate or the cost of a prepayment penalty, the entry points to the calculator that works it out on your own figures.

If you are reading a term sheet now, look up the sizing terms first (DSCR, LTV, debt yield), then the exit terms (prepayment, defeasance, yield maintenance, extension options). Those two groups decide most of the difference between quotes.

Frequently asked questions

What is the most important term on an apartment loan quote?

For loan size, the minimum DSCR, because on most apartment loans it limits the loan before the LTV limit does. For long-term cost, the prepayment terms, because yield maintenance or defeasance can make an early sale or refinance expensive. Read both alongside the rate. Two quotes with the same rate can differ by hundreds of thousands of dollars in proceeds or exit cost.

What is the difference between LTV and LTC?

Loan-to-value divides the loan by the property's appraised value, or on a purchase, usually the lower of price and value. Loan-to-cost divides the loan by the total project cost: purchase price plus renovation or construction costs. Permanent loans on stabilized buildings are sized on LTV. Bridge and construction loans are usually sized on LTC, with a check against the value once the work is finished.

What does "spread over the 10-year Treasury" mean?

Many fixed-rate apartment loans are priced as a benchmark plus a spread. The benchmark is a market yield, often a Treasury yield matched to the loan term, and the spread is the lender's margin for the risk and costs of the loan. Your rate moves with the benchmark until you lock it. Floating-rate loans work the same way using SOFR as the index.

What is a bad-boy carve-out?

A non-recourse loan limits the lender to the property if the loan defaults, but carve-outs make the borrower or guarantor personally liable for specific acts, such as fraud, misapplying rents, unauthorized transfers or a voluntary bankruptcy filing. They are standard in agency, CMBS and life company loans. Read them before you sign, because they define what non-recourse actually means on your loan.

What is the difference between yield maintenance and defeasance?

Both make a lender whole when a fixed-rate loan is paid off early. Yield maintenance is a cash payment calculated from the gap between the loan rate and a Treasury yield over the remaining term. Defeasance replaces the property as collateral with a portfolio of government securities that make the remaining payments. Which one applies is set by your loan documents.