Reverse Mortgage Terms

Acceleration clause -The part of the 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)

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

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