Reverse Mortgage Terms

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

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 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 on a mortgage; the time a mortgage begins

Counseling – to be eligible for a HECM, Reverse Mortgage, federally insured, you must discuss the loan with a counselor employed by a nonprofit or public agency approved by the U.S. Department of Housing and Urban Development, (HUD)

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, 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

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 – 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

Initial interest rate – in the HECM program, the interest rate that is first charged on the loan beginning at closing.

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 – London Interbank Offered Rate os a daily reference rate based on the interest rate at which the banks borrow unsecured funds from the London Money Market (or interbank market)

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 the index of current interest rates.

Maturity – when a loan must be repaid; when it becomes "due and payable"

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 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

Property tax deferral (PTD) – reverse mortgages that pay annual property taxes; usually offered by state or local governments

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 rescission – 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

T-rate – the rate for U.S. Treasury Securities; used to determine the initial, expected, and current interest rates for the HECM program

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