203-b Limit

Maximum dollar limit in each county regardless of home value insured by FHA - Section 203-b o f the National Housing Act - also referred as Maximum Claim Amount for reverse mortgages.

AARP model specifications

Rules recommended by AARP for analyzing and comparing reverse mortgages.

Acceleration Clause

Section of mortgage that declares when a loan may be declared due and payable by lender.

Adjustable Rate

An interest rate that changes, based on changes in a published market-rate index and margin on loan.

Annuity

A monthly cash payment you get from an insurance company for the rest of your life – not a typical provision of a reverse mortgage.

Appraisal

An estimate of a home’s market value and condition- required for all reverse mortgages.

Appreciation

An increase in an asset’s value such as a home.

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 – also known as settlement.

Condemnation

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 mortgage that reserves an amount of money which the borrower may make future draws. Also known as a "line-of-credit" or "credit line."

Current Interest Rate

In an Adjustable Rate Mortgage , the interest rate currently being charged on a loan; it equals the ‘Index ‘ (either T-Bill or Libor) plus a margin (see below).

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. This is not reverse mortgage offered by lenders.

Depreciation

Decrease in the value of a home or other assets.

Eminent Domain

The right of a government to take private property for public use by condemnation. Example - acquiring private land to build a school.

Expected Interest Rate

Interest rate used to determine amount of money to borrower at closing. For Adjustable Rate HECM loans this rate is guaranteed for 120 days from date a mortgage company obtains FHA case number.

Fannie Mae

A quasi government agency that buys and sells mortgages – a private company that is regulated by Federal Government.

Federal Housing Administration (FHA)

The department  of the U. S. Department of Housing and Urban Development (HUD) that insures HECM loans.

Federally Insured Reverse Mortgage

A reverse mortgage insured  by the federal government (FHA) insuring the borrower will get complete proceeds of loan – see  also Home Equity Conversion Mortgage (HECM).

Fixed Monthly Loan Advances

Payments of the same amount that are made to a borrower each month for either a ‘Fixed’ or ‘Tenure’ (undetermined) period pf time.

Home Equity

The market value of a real property minus any liens or money owed on the property.

Home Equity Conversion

Turning home equity into cash without having to leave your home or make regular loan repayments – see also HECM.

Home Equity Conversion Mortgage (HECM)

The only reverse mortgage program insured by the Federal Housing Administration (FHA).

Initial Interest Rate

In the HECM program, the interest rate that is first charged on the loan beginning at closing. For ARM (adjustable Rate Mortgage) equals the index plus 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. Same concept for ‘forward’ or ‘reverse’ mortgage.

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. This amount is capped in a reverse mortgage by the value of the home when the loan is repaid – see non-recourse loan.

Lump Sum

- A single cash loan advance at closing to the borrower.

Margin

In the HECM program, the amount added to the ‘Index Rate’ to determine the initial and current interest rates as well as future interest rates. Index Rate could be One Year Treasury Bill (T-Bill) or Libor for calculation of initial and future interest rate.

Maturity

A date when a loan must be repaid; when it becomes "due and payable" .

Maximum Claim Amount

Maximum dollar limit in each county regardless of home value insured by FHA - Section 203-b of the National Housing Act - also referred as FHA 203-b loan limit.

Mortgage

A legal document securing property (home) as repayment of a debt. Some states utilize Deed of Trust instrument for same purpose.

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 – no personal liability to repay beyond value of secured property.

Origination

The process of taking application for a mortgage including performing certain processing and document preparation.

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 not insured by HUD and provisions are created by a private company.

Reverse Annuity Mortgage

A reverse mortgage in which a lump sum is used to purchase an annuity that gives the borrower a monthly income for life. Not a typical feature of today’s reverse mortgage.

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

Company that administers 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. Today’s reverse mortgages do not have this feature.

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)

The projected annual average cost of a reverse mortgage including all itemized costs.

T-Bill

The rate for U.S. Treasury Securities; used to determine the initial, expected, and current interest rates for the HECM program.

Uninsured reverse mortgage

Not insured by HUD; due and payable on a specific date. See also Proprietary Reverse Mortgage.