Reverse Mortgage Terms
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
Appraisal - an estimate of how 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 nonprofit 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 - a meeting where documents are signed to "close the deal" on a mortgage; the time a mortgage begins
CMT rate – the Constant Maturity Treasury rate, used as an interest rate index in the HECM program
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
Creditline - 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, which equals one of the HUD-approved interest rate indices (1-month CMT, 1-year CMT, or 1-month LIBOR) plus a margin
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 either the 10-year CMT or the 10-year LIBOR rate plus a margin (see below)
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 value limit – in the HECM program, the largest home value that can be used to determine a borrower’s loan advances
Initial interest rate - in the HECM program, the interest rate that is first charged on the loan beginning at closing; it equals one of the HUD-approved interest rate indices (1-month CMT, 1-year CMT, or 1-month LIBOR) 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.
LIBOR – the London Interbank Offered Rate, used as an interest rate index in the HECM program
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 - a single loan advance at closing
Margin - in the HECM program, the amount added to an interest rate index to determine the initial, current, and expected interest rates
Maturity - when a loan must be repaid; when it becomes "due and payable"
Model specifications - rules recommended by AARP for analyzing and comparing reverse mortgages
Mortgage - a legal document making a home available to a lender to repay a debt
Non-recourse mortgage - a home loan in which the borrower generally cannot 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
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
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
Supplemental Security Income (SSI) - a federal monthly income program for low-income persons who are aged 65+, blind, or disabled
Tenure advances - fixed monthly loan advances for as long as a borrower lives in a home
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
Find out if a reverse mortgage is right for you.
Reverse mortgages are available to most homeowners that are 62 years of age or older with equity in their home. To find out if you qualify or to get your questions answered, please contact us for a no-obligation, no-pressure consultation. We're local mortgage professionals that provide straight and honest answers without the hard sell.