Reverse Mortgage Definitions Made Simple
When it comes to reverse mortgages, knowing estate planning lingo is important. That is why SeniorClarity has put together this list of terms related to reverse mortgage loans. We hope this glossary of reverse mortgage definitions helps you more easily understand reverse mortgages.
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 Home Equity Conversion Mortgage (HECM) reverse mortgage; the name comes from Section 203-b of the National Housing Act.
Acceleration clause: The part of a reverse loan 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.
Annuity: A monthly cash payment you get from an insurance company for the rest of your life.
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 seeking active senior living or estate planning assistance.
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.
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.
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".
Current interest rate: In the HECM program, the interest rate currently being charged on a reverse mortgage loan; it equals the one-year rate for U.S. Treasury Securities, 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 the 10-year rate for U.S. Treasury Securities, plus a margin.
Fannie Mae: A private company that buys and sells mortgages; a government-sponsored business that is supervised by the federal government. A fixed HECM lender.
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 reverse 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; it equals the one-year rate for U.S. Treasury Securities, 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.
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 one-year Treasury rate to determine the initial and current interest rates, and to the 10-year U.S. Treasury rate to determine the expected interest rate.
Maturity: When a loan must be repaid; when it becomes "due and payable."
Model specifications: Reverse mortgage rules recommended for analyzing and comparing reverse loans.
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.
Proprietary reverse mortgage: A reverse mortgage product owned by a private company.
Reverse annuity mortgage: A reverse mortgage loan in which a lump sum is used to purchase an annuity that gives the borrower a monthly income for life.
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.
Shared equity: An itemized loan cost based on a percent of a home's value at loan maturity; for example, a 5% shared equity fee on a home worth $200,000 at maturity would be $10,000.
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-bill rate: The rate for U.S. Treasury Securities; used to determine the initial, expected, and current interest rates for the HECM program.
Uninsured reverse mortgage: A reverse mortgage that becomes due and payable on a specific date.
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