Reverse Mortgage Glossary of Terms

Adjustable Rate: An interest rate that will change during the life of the loan based on an index.

Annuity: An insurance product that pays out an income stream and is often used as part of a retirement strategy.

Appraisal: A professional estimate of the value of your home based on the features of the property and comparable sales in the area.

Available Principle Limit: The equity amount available to borrowers determined by age, rates and the lesser of the appraised value, sale price or the maximum lending limit.

Closing: The process where the clients sign the loan documents to begin the final process of having their loan fund.

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 the property, pay property taxes and/or hazard insurance, and failure to live in the home as your primary residence.

Depreciation: A decrease in the value of the home.

Federal Housing Administration (FHA): An agency within the U.S. Department of Housing and Urban Development (HUD) that provides insurance to FHA-approved lenders for HECM loans.

FHA Insured Reverse Mortgages: Home Equity Conversion Mortgages (HECM).

Home Equity: The value of the home minus any debt against it.

Home Equity Conversion Mortgages (HECM): FHA-Insured reverse mortgage loans that permit senior homeowners to tap into a portion of the equity in their home.  A HECM allows you to continue living in your home without having to make monthly mortgage payments.

Line of Credit: A credit line that permits a borrower to control the timing and amount of withdrawals.

Loan Balance: The amount owed, including principal and interest.

London Interbank Offered Rate (LIBOR Index): An index that is used to calculate the interest rate adjustments on HECM adjustable rate loans.

Lump Sum: A single loan payment (draw) to the borrower at closing.

Mortgage: A lien on the property that pledges a promise to repay the loan.

Mortgage Insurance Premium (MIP): The fee paid by a borrower to HUD or a private insurer for mortgage insurance. It guarantees that the borrower will continue to receive their expected loan proceeds. The FHA requires an initial Mortgage Insurance Premium.  The MIP will also be assessed throughout the life of the loan and will be added to the outstanding balance and remitted to HUD on a monthly basis.

Non-Recourse Mortgage: A home loan in which a lender may look only to the value of the home for repayment; no other assets may be attached if the loan balance grows beyond the mortgaged home value.  If you sell the home to repay the loan, you or your heirs will never owe more than the loan balance or the value of the property, whichever is less.

Origination Fee: A fee charged to the borrower for processing a loan application. Lenders can charge 2% of the first $200,000 of the home’s value and then 1% of any amount over $200,000. Origination fees are capped at $6,000.

Reverse Mortgage: A loan that allows seniors 62 and older to access a portion of their home’s equity to supplement their retirement income without having to make monthly mortgage payments.

Right of Rescission: A borrower’s right to cancel a reverse mortgage loan within three business days of closing.

Set-Aside: Funds for specified uses that are netted out when determining the borrower’s principal limit.

Total Annual Loan Cost (TALC) Rate: The projected annual cost of a reverse mortgage including all itemized costs.

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.