Glossary of Reverse Mortgage Terms
Following is a helpful glossary of Reverse Mortgage terms and definitions.
If you have questions or you cannot find an answer here, our Reverse Mortgage Specialists are here to help. Please feel free to give us a call toll free at 1-866-704-2826.
203-b Limit - the dollar limit in each county for how much of a home's value can be used to determine the amount of money you can get from a federally insured HECM reverse mortgage; the name comes from Section 203-b of the National Housing Act
Acceleration Clause - the part of a contract that says when a loan may be declared due and payable
Adjustable Rate - an interest rate that changes, based on changes in a published market-rate index
Annuity - a monthly cash payment you get from an insurance company for the rest of your life.
Appraisal - an estimate of much a house would sell for if it were sold; also called its market value
Appreciation - an increase in a home's value
Area Agency on Aging (AAA) - a local or regional non-profit organization that provides information on services and programs for older adults
Cap - a limit on the amount an adjustable interest rate may go up or down during a specified time period
Closing - the process of completing a loan transaction at which time the mortgage documents are signed, funds are disbursed, and the property is transferred to the buyer. Also called a settlement.
Condemnation - a court action saying a property is unfit for use: also, the government taking private property to use for the public by the right of eminent domain
Correspondent - an organization that typically sells the mortgages it originates to other lenders with which it has an ongoing relationship.
Credit Line (Line of Credit) - a credit account that lets a borrower decide when to take money out and also how much to take out; also known as a "line-of-credit" or "credit line."
Current Interest Rate - in the HECM program, the interest rate currently being charged on a loan; it equals the one-year rate for U.S. Treasury Securities, plus a margin (see below)
Deed of Trust - a document which pledges real property to secure a loan, used instead of a mortgage in certain states.
Default - a breach or nonperformance of the terms of a note or of the provisions of a mortgage loan. Defaults under a reverse mortgage could include failure to repay the loan after a repayment notice has been issued, failure to maintain property, and failure to pay property taxes and/or hazard insurance.
Deferred Payment Loans (DPLs) - reverse mortgages that give you a lump sum of cash to repair or improve a home; usually offered by state or local governments
Depreciation - a decrease in the value of a home
Eminent Domain - the right of a government to take private property for public use; for example, taking private land to build a highway
Expected Interest Rate - in the HECM program, the interest rate used to determine a borrower's loan advance amounts; it equals the 10-year rate for U.S. Treasury Securities, plus a margin (see below)
Fannie Mae (FNMA) - a private company that buys and sells mortgages; a government-sponsored business that is watched over by the federal government
Federal Housing Administration (FHA) - the part of the U. S. Department of Housing and Urban Development (HUD) that insures HECM loans
Federally Insured Reverse Mortgage - a reverse mortgage guaranteed by the federal government so you will always get what the loan promises; also, a Home Equity Conversion Mortgage (HECM)
Fixed Monthly Loan Advances - payments of the same amount that are made to a borrower each month
Home Equity - the value of a home, subtracting any money owed on it
Home Equity Conversion - turning home equity into cash without having to leave your home or make regular loan repayments
Home Equity Conversion Mortgage (HECM) - the only reverse mortgage program insured by the Federal Housing Administration, a federal government agency
Home Keeper Mortgage - a reverse mortgage program for seniors who want to stay in their homes. This loan converts the equity in the senior's home into a variety of payment plans, including tenure monthly payments, a line of credit, a lump sum payment, or a combination of the three.
Home Keeper for Home Mortgage Purchase - a reverse mortgage program for seniors who want to purchase a new home. This is a variation of the Home Keeper loan that provides seniors some of the funds for the purchase of a new home, so they do not have to dip too far into their savings or make monthly loan payments. This program is popular with seniors who want to downsize or find a home that better suits their needs.
HUD (Housing and Urban Development) - a federal agency that oversees the Federal Housing Administration and numerous housing and community development programs.
Initial Interest Rate - in the HECM program, the interest rate that is first charged on the loan beginning at closing; it equals the one-year rate for U.S. Treasury Securities, plus a margin
Leftover Equity - the sale price of the home minus the total amount owed on it and the cost of selling it; the amount the homeowner or heirs get when the house is sold.
Loan Advances - payments made to a borrower, or to another party on behalf of a borrower
Loan Balance - the amount owed, including principal and interest; capped in a reverse mortgage by the value of the home when the loan is repaid.
London Interbank Offerred Rate (LIBOR Index) - An index that is used to determine interest rate changes for certain ARM plans. It represents the average interest rate for 6-month or 1-year U.S. dollar-denominated deposits in the London Interbank market based on quotations of major banks.
Lump Sum - a single loan advance at closing
Margin - in the HECM program, the amount added to the one-year Treasury rate to determine the initial and current interest rates, and to the 10-year Treasury rate to determine the expected interest rate
Maturity - when a loan must be repaid; when it becomes "due and payable"
Maximum Claim Amount - The lesser of a home's appraised value and the maximum lending limit that can be insured by FHA for one-family residences in the area where the property is located. Used in determining the principal Limit for a HECM loan.
Modified Tenure Payments - Equal monthly payments to the borrower that continue until the borrower no longer occupies the property as his or her principal residence, combined with a line of credit on which the borrower may draw at any time.
Modified Term Payments - Equal monthly payments to the borrower over a fixed term agreed to by the lender and borrower, combined with a line of credit on which the borrower may draw at any time.
Mortgage - a legal document making a home available to a lender to repay a debt
Mortgage Insurance Premium (MIP) - the fee paid by a borrower to FHA or a private insurer for mortgage insurance. Charged to the borrower to reduce the risk of loss in the event that the outstanding balance exceeds the vale of the property at the times that the reverse mortgage is due and payable. The FHA requires a single, upfront Mortgage Insurance Premium to be paid at closing. A monthly Mortgage Insurance Premium will be assessed throughout the life of the loan and will be added to the outstanding balance and remitted to HUD monthly by the lender.
Net Principal Limit - the amount of money available to the borrower at any time over the life of the loan. Equal to the Principal Limit less (1) any payments to the borrower, (2) any financed closing cost, (3) the servicing fee allocations, (4) any set-asides, plus (5) any partial repayments.
Non-Recourse Mortgage - a home loan in which the borrower can never owe more than the home's value at the time the loan is repaid
Origination - the process of setting up a mortgage, including preparing documents
Origination Fee - A fee charged to the borrower for processing a loan application, usually computed as a percentage of the loan amount. Each loan product may differ. For HECM loans, the origination fee is the greater of $2000 or 2% of the Maximum Claim Amount. For home Keeper loans, the fee is the greater of $2000 or 2% of the adjusted property value.
Payment Plan - the manner in which loan proceeds are paid out to the borrower. In the HECM program, six options are available: (1) Tenure Payments, (2) Term Payments, (3) Credit Line, (4) Lump Sum, (5) Modified Tenure Payments, and (6) Modified Term Payments. For Home Keeper loans, borrowers may receive payments in one of three ways: (1) tenure plan, (2) line of credit plan, and (3) Lump Sum. All options are not available on all products: see Reverse Mortgage Handbook for payment plans offered for each specific product type.
Principal Limit - the total amount of money available to a borrower at loan origination. The principal limit is based on the maximum claim amount, the expected average interest rate, and the age of the youngest borrower.
Property Tax Deferral (PTD) - reverse mortgages that pay annual property taxes; usually offered by state or local governments
Proprietary Reverse Mortgage - a reverse mortgage product owned by a private company
PUD (Planned-Unit Development) - a real estate project in which each unit owner has title to a residential lot and building and a nonexclusive easement on the common areas of the project. The owner may have an exclusive easement over some parts of the common areas (for example, a parking space_ while the common facilities are owned and maintained by a homeowner's association.
Reverse Annuity Mortgage - a reverse mortgage in which a lump sum is used to purchase an annuity that gives the borrower a monthly income for life.
Reverse Mortgage - a home loan that gives cash advances to a homeowner, requires no repayment until a future time, and is capped by the value of the home when the loan is repaid
Right of Recission - a borrower's right to cancel a home loan within three business days of the closing
Servicing - administering a loan after closing, such as maintaining loan records and sending statements
Set-Aside - funds for specified uses that are netted out when determining the borrower's Principal Limit.
Shared Equity - an itemized loan cost based on a percent of a home's value at loan maturity; for example, a 5% shared equity fee on a home worth $200,000 at maturity would be $10,000
Single-Purpose Reverse Mortgages - reverse mortgages that can be used for only one purpose, generally offered by state or local government agencies.
Supplemental Security Income (SSI) - a federal monthly income program for low-income persons who are aged 65+, blind, or disabled
Tenure Payments/Tenure Advances - fixed monthly loan advances for as long as a borrower lives in a home
Term Payments/Term Advances - fixed monthly loan advances for a specific period of time
Total Annual Loan Cost (TALC) rate - the projected annual average cost of a reverse mortgage including all itemized costs
T-rate - the rate for U.S. Treasury Securities; used to determine the initial, expected, and current interest rates for the HECM program
Uninsured Reverse Mortgage - a reverse mortgage that becomes due and payable on a specific date
U.S. Department of Housing and Urban Development (HUD) - A federal agency that oversees the Federal Housing Administration (FHA) and numerous housing and community development programs.
