Reverse Mortgage Glossary

 

Acceleration clause - the part of a 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 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.

 

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" 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 recession - 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.