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Reverse Mortgage Glossary of Terms
FAQs | Info | Loan Process | Counseling | Glossary | HECM 'At-A-Glance'
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Adjustable Rate - Adjustable rate is an interest rate that changes, based on changes in a published market-rate index.
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. The current 203-b limit for the HECM Reverse Mortgage Loan is $625,500 through 2010.
Annuity - a monthly cash payment you get from an insurance company for the rest of your life. adjustable rate - an interest rate that changes, based on changes in a published market-rate index
Appreciation - an increase in home value.
Appraisal - Appraisal is an estimate of how much a house would sell for if it were sold; also called its market value.
APR -APR is an annual percentage rate which is a measure of the total cost of the loan expressed as a yearly percentage rate. All APRs are calculated by the lender.
Area Agency on Aging (AAA) - a local or regional nonprofit organization that provides information on services and programs for older adults
Cap -Cap is a limit on the amount an adjustable interest rate may go up or down during a specified time period. The first number is the maximum increase allowed for one adjustment period; the second is the total increase allowed over the life of the loan.
Closing -Closing is a meeting where documents are signed to "close the deal" on a mortgage; the time a mortgage begins.
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
Credit line - 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)
deferred payment loans (DPL's) - 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
Expected Interest Rate - HECM program The expected rate is fixed throughout the life of the loan and is used to determine payments to the borrower.
Fannie Mae - a private company that buys and sells mortgages; a government-sponsored Federal Housing Administration (FHA)
Federal Housing Administration (FHA) is the part of the U. S. Department of Housing 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 -Home equity is the value of a home, subtracting any money owed on it.
Home Equity Conversion Mortgage (HECM)-Home Equity Conversion Mortgage (HECM) is the only reverse mortgage program insured by the Federal Housing Administration, a federal government agency.
Index-Index is the basis for setting an adjustable rate.
Initial Interest Rate - 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.
Jumbo Loan-Jumbo loan is generally for higher-valued homes; Offers higher payout compared to HECM loan limits.
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Leftover Equity-Leftover equity equals the sale price of the home, minus the total amount owed on it and the cost of selling it; the amount the homeowner, heirs or estate would get when the house is sold and the loan is paid off.
LIBOR or the London Interbank Offered Rate -LIBOR or the London Interbank Offered Rate is a daily reference rate based on the interest rates at which banks offer to lend unsecured funds to other banks in the London wholesale money market.
View LIBOR historical charts for further information.
Line of Credit-Line of credit is amount of money available from loan for future draws.
Loan To Value (LTV)-Loan To Value (LTV) is the amount available to borrow as a percentage of your home value.
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.
Lump sum -Lump sum is a single loan advance at closing.
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Margin - In the HECM program, the amount added to the LIBOR index to determine the initial and current interest rates for the adjustable rate option. For example, if the LIBOR index is 1% and the margin is 3% the interest rate charged on the loan balance will be 4%.
Maturity – The point when a loan must be repaid; when it becomes "due and payable" . A reverse mortgage matures when the last remaining homeowner moves away permanently or sells the home.
Mortgage - A legal document making a home security to a lender to repay a debt, in California a deed of trust is used.
Mortgage Insurance Premium (MIP) - HECM Program The premium paid for required mortgage insurance, whereby the government guarantees homeowner has access to funds if loan issuer goes out of business.
Non-recourse Mortgage -The HECM reverse mortgage is a "non-recourse loan". This means that the HECM borrower (or his or her estate) will never owe more than the loan balance or value of the property, whichever is less; and no assets other than the home must be used to repay the debt. This applies only when the borrower or estate choose to sell the property to pay off the reverse mortgage loan. If the borrower or estate want to retain the property the balance must be paid in full.
Origination - setting up a mortgage, including educating client, application, appraisal, credit report, flood cert, title insurance, open escrow, submit file to lender’s underwriter, clear condition, prepare loan documents and loan signing and closing.
Origination Fee -Origination fee is a one-time fee paid to the lender at the time the loan closes.
Property tax deferral (PTD) – programs offered to seniors, usually be state or local governments that defer property taxes until the home is sold
Proprietary reverse mortgage - a reverse mortgage program offered by a private company
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Reverse annuity mortgage - a reverse mortgage that was issued in the early days of reverse mortgage in which a lump sum is used to purchase an annuity that gives the borrower a monthly income for life. Annuities are no longer used in conjunction with reverse mortgages and not advised.
Reverse Mortgage - Reverse Mortgage is a home loan that gives cash advances to a homeowner who is at least 62 years old, requires no repayment until a future time, and is capped by the value of the home when the loan is repaid.
Right of Rescission-Right of rescission is a borrower's right and ability to cancel a home loan including reverse mortgages, within three business days of the closing.
Servicing – handling aspects of a loan after closing, including maintaining loan records, reconciling with HUD and the investor and sending monthly statements to the borrower
Supplemental Security Income (SSI) - a federal monthly income program for low-income persons who are aged 65+, blind, or disabled
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Tenure Advances-Tenure advances are equal monthly payments as long as at least one borrower lives and continues to occupy the property as a principal residence.
Term Advances-Term advances are equal monthly payments for a fixed period of months selected, a specific period of time
Total Annual Loan Cost (TALC) Rate-Total Annual Loan Cost (TALC) rate is the projected annual average cost of a reverse mortgage including all itemized costs. Part of the three page calculation sheets.
Uninsured reverse mortgage - a private or jumbo reverse mortgage, not insured by HUD
