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Reverse Mortgage Glossary

Reverse Mortgage Glossary

A

Acceleration clause – the part of a contract that defines 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 a home’s market value

Appreciation – an increase in a home’s value

Area Agency on Aging (AAA) – a local or regional nonprofit organization providing information on services and programs for older adults

B

C

Cap – a limitation on the amount by which an adjustable interest rate may change during a specified time period

Closing – a meeting at which legal documents are signed to “close the deal” on a mortgage; the time at which a mortgage begins

CMT rate – the Constant Maturity Treasury rate, used as an interest rate index in the HECM program

Condemnation – a court action adjudging a property to be unfit for use, or converting a private property to public use under the right of eminent domain

Creditline – a credit account that permits a borrower to control the timing and amount of the loan advances; also known as a “line-ofcredit”

Current interest rate – the interest rate currently being charged on a loan

D

Deferred payment loans (DPLs) – reverse mortgages providing lump sums for repairing or improving homes, usually offered by state or local governments

Depreciation – a decrease in the value of a home

E

Eminent domain – the right of a government to take private property for public use, for example, to build a highway

Expected interest rate – in the HECM program, the interest rate used to determine a borrower’s loan advances

F

Fannie Mae – a private company that buys and sells mortgages; a government-sponsored entity that operates under the general oversight of the federal government

Federal Housing Administration (FHA) – the part of HUD (the U.S. Department of Housing and Urban Development) that insures HECM loans

Federally insured reverse mortgage – a Home Equity Conversion Mortgage (HECM) (see below)

G

H

Home equity – the value of a home, minus any debt against 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

Home value limit – in the HECM program, the largest home value that can be used to determine a borrower’s loan advance amounts

I

Initial interest rate – the interest rate that is first charged on a loan beginning at closing

J

K

L

Leftover equity – the net proceeds from selling a home, minus the total amount of debt owed against it

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; generally capped (limited) in a reverse mortgage by a non-recourse limit

Lump sum – a single loan advance at closing

M

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 becomes due and payable a detailed set of rules for analyzing and comparing reverse mortgages

Mortgage – a legal document making a home available to a lender to satisfy a debt

N

Non-recourse mortgage – a home loan in which a lender generally may look only to the value of the home for repayment

O

Origination – the overall administrative process of setting up a mortgage, including the preparation of documents

P

Property tax deferral (PTD) – reverse mortgages providing annual loan advances for paying property taxes, usually offered by state or local governments

Proprietary reverse mortgage – a reverse mortgage product owned by a private company

Q

R

Reverse mortgage – a non-recourse loan against home equity providing cash advances to a borrower and requiring no repayment until a future time

Right of rescission – a borrower’s right to cancel a home loan within three business days of closing

S

Servicing – performing administrative functions on a loan after closing

Supplemental Security Income (SSI) – a federal program providing monthly cashbenefits to low-income persons aged 65+, blind, or disabled

T

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.

U

V

W

X

Y

Z