REVERSE MORTGAGE GLOSSARY
Glossary of Reverse Mortgage Terms
Below is a glossary of important concepts and their definitions. We recommend becoming familiar with this glossary before seriously considering a reverse mortgage.
Acceleration clause – the part of a contract that says when a loan may be declared due and payable
ACH – Automated Clearinghouse
Adjustable rate – an interest rate that changes, based on changes in a published market-rate index
ADP – Automated Data Processing
Anchorage – Connection between superstructure and foundation, by means of welds, bolts, and various light gage metal plates. Anchorage does not refer to any type of soil anchor. (Note: soil anchors are acceptable)
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
Appraisal Fee – While you apply for a reverse mortgage, you need an FHA appraiser to assess the current market value of your home. The FHA appraiser checks for property defects and finds out whether your homes structure complies with the Federal regulations.
Appreciation – an increase in a home’s value
ARM – Adjustable Rate Mortgage
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Cap – a limit on the amount an adjustable interest rate may go up or down during a specified time period
CHUMS – Computerized Home Underwriting Management System
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
Construction-Permanent – A construction-permanent (herein, “CP”) mortgage combines the features of: a) a construction loan (a short-term interim loan for financing the cost of construction) and b)the traditional long-term permanent residential mortgage.
Counseling – the borrower is required to receive counseling before the HECM application is processed, will be provided by HUD-approved housing counseling agencies and will focus on the different types of home equity conversion mortgages available, the suitability of a home equity conversion mortgage for the borrower, and the alternatives to a home equity conversion mortgage.
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.”
CRV – Certificate of Reasonable Value
Current interest rate – in the HECM program, the interest rate currently being charged on a loan; it equals the one-year rate for U.S. Treasury Securities, plus a margin (see below)
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DE – Direct Endorsement
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
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EEM – Energy Efficient Mortgage
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 (see below)
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Fannie Mae – a private company that buys and sells mortgages; a government-sponsored business that is watched over by the federal government
FHA – Federal Housing Administration, 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
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HECM – Home Equity Conversion Mortgage, the only reverse mortgage program insured by the Federal Housing Administration, a federal government agency
HOC – Home Ownership Center
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
HUD – Department of Housing and Urban Development
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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
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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.
Line of Credit – the borrower will receive the mortgage proceeds in unscheduled payments of in installments, at times and in amounts of the borrower’s choosing, until the line of credit is exhausted
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.
LTV – Loan to Value
Lump sum – a single loan advance at closing
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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 Treasury rate to determine the expected interest rate
Maturity – when a loan must be repaid; when it becomes “due and payable”
Maximum Claim Amount – is the lesser of the appraised value of the property or the maximum mortgage amount for a one-family residence that HUD will insure in an area under Section 203(b) (2) of the National Housing Act.
MIC – Mortgage Insurance Certificate
MIP – Mortgage Insurance Premium
Modified Tenure – The borrower may combine a line of credit with monthly payments for life, or for as long as the borrower continues to live in the home as a principal residence. In exchange for reduced monthly payments, the borrower will set aside a specified amount of money for a line of credit, on which he or she can draw until the line of credit is exhausted.
Modified Term – the borrower may combine a line of credit with monthly payments for a fixed period of months selected by the borrower. In exchange for reduced monthly payments, the borrower will set aside a specified amount of money for a line of credit, on which he or she can draw until the line of credit is exhausted
Mortgage – a legal document making a home available to a lender to repay a debt
Mortgage Insurance Premium (MIP) – The HECM program requires borrowers to pay the mortgage insurance premium which ensures that you receive the loan advances even when your lender or loan servicer is out of business. This premium amounts to 2% of the maximum loan amount or home value, whichever is less, along with an annual premium equal to 0.5% of the loan balance. The MIP guarantees that you will never owe more than your home value while you pay off the reverse mortgage.
Mortgagee – the Lender
Mortgagor – the Borrower
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Non-recourse mortgage – a home loan in which the borrower (or his or her estate) will never owe more than the loan balance of the value of the property, whichever is less: and no assets other than the home must be used to repay the debt.
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Origination – the process of setting up a mortgage, including preparing documents
Origination fee – The origination fee covers a lender’s operating expenses for making the reverse mortgage…i.e. office overhead, marketing costs, etc. Under the HECM / Reverse Mortgage loan program, the origination fee equals 2% on the initial $200,000 of maximum claim amount (lesser of the home value or county lending limit) and 1% on the balance thereafter with a cap of $6,000.
Other closing costs – Apart from the origination fee, mortgage insurance premium (MIP) and appraisal fee, there are various costs that are paid at the time of closing. These comprise of credit report fee, escrow fee, courier fee, pest inspection fee, recording fee, document preparation fee, survey fee and title insurance fee.
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PFGMH – Permanent Foundations Guide for Manufactured Housing
PITI – Principal, Interest, Tax, Insurance
Proprietary reverse mortgage – a reverse mortgage product owned by a private company
PTD – Property Tax Deferral, reverse mortgages that pay annual property taxes; usually offered by state or local governments
PUD – Planned Unit Development
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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.
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
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Servicing – administering a loan after closing, such as maintaining loan records and sending statements
Servicing set-aside fee – This includes an amount which is deducted from the loan limit at the time of closing and makes up for the costs of servicing your reverse mortgage account. The reverse mortgage loan servicer may charge a monthly fee that can range from $30 to $35. The amount set-aside is dependant upon the borrower’s age and life expectancy.
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
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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-rate – the rate for U.S. Treasury Securities; used to determine the initial, expected, and current interest rates for the HECM program
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Uninsured reverse mortgage – a reverse mortgage that becomes due and payable on a specific date
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VA – Department of Veteran Affairs