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