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Glossary of Reverse Mortgage Terms

A  |  B  |  C  |  D  |  E  |  F  |  G  |  H  |  I  |  J  |  K  |  L  |  M

N  |  O  |  P  |  Q  |  R  |  S  |  T  |  U  |  V  |  W  |  X  |  Y  |  Z



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 HECM reverse mortgage; the name comes from Section 203-b of the National Housing Act; HUD is considering setting a single loan limit for the entire United States. Top of page

A

AARP model specifications - rules recommended by AARP for analyzing and comparing reverse mortgages (visit www.aarp.org/revmort).  Top of page

Acceleration clause - the part of a contract that says when a loan may be declared due and payable.  Top of page

Adjustment date - the date that the interest rate changes on an adjustable-rate mortgage (ARM).  Top of page

Adjustment period - the period elapsing between adjustment dates for an adjustable-rate mortgage (ARM).  Top of page

Adjustable rate - an interest rate that changes, based on changes in a published market-rate index.  Top of page

Amortization - the gradual repayment of a mortgage loan, both principal and interest, by installments; not used with reverse mortgages.  Top of page

Annual Percentage Rate (APR) - the cost of credit, expressed as a yearly rate including interest and mortgage insurance and loan origination fees. This allows the buyer to compare loans, however APR should not be confused with the actual note rate.  Top of page

Annuity - a monthly cash payment you get from an insurance company for the rest of your life.  Top of page

Appraisal - an estimate of how much a house would sell for if it were sold: also called its' market value.  Top of page

Appreciation - an increase in a home's value.  Top of page

Area Agency on Aging (AAA) - a local or regional nonprofit organization that provides information on services and programs for older adults.  Top of page

Assignment - the transfer of a mortgage from one company to another.  Top of page

Assumability - reverse mortgages are not assumable.  Top of page

B

Broker - an individual or company that brings borrowers and lenders together for the purpose of loan origination.  Top of page

C

Cap - a limit on the amount an adjustable interest rate may go up or down during a specified time period.  Top of page

Certificate of Counseling - a document issued by a FHA approved counseling service company after a borrower has completed Reverse Mortgage Counseling.  Top of page

Closing - a meeting where documents are signed to "close the deal" on a mortgage; the time a mortgage begins.  Top of page

Closing Costs - normally include an origination fee, mortgage insurance, property taxes, charges for title insurance, recording fees and appraisal fees.  Top of page

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.  Top of page

Consumer Reporting Agency (Credit Bureau) - an organization that handles the preparation of reports used by lenders to determine a potential borrower's credit history and other information from public records.  Top of page

Credit Report - a report detailing an individual's credit history that is prepared by a credit bureau and used by a lender to determine if federal liens exist against a Reverse Mortgage borrower.  Top of page

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."  Top of page

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).  Top of page

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.  Top of page

D

Depreciation - a decrease in the value of a home.  Top of page

E

Eminent domain - the right of a government to take private property for public use; for example, taking private land to build a highway.  Top of page

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).  Top of page

F

Fannie Mae - a private company that buys and sells mortgages; a government-sponsored business that is watched over by the federal government.  Top of page

Federal Housing Administration (FHA) - the part of the U.S. Department of Housing and Urban Development (HUD) that insures HECM loans.  Top of page

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).  Top of page

Federal Liens - Federal liens against a property or borrower must be paid before a Reverse Mortgage is closed or paid from the Reverse Mortgage proceeds.  Top of page

First Mortgage - the primary lien against a property.  Top of page

Fixed monthly loan advances - payments of the same amount that are made to a borrower each month.  Top of page

G Top of page

H

Homekeeper - Fannie Mae's reverse mortgage product that allows a borrower to use a reverse mortgage to purchase a home.

Home equity - the value of a home, subtracting and money owed on it.  Top of page

Home equity conversion - turning home equity into cash without having to lease your home or make regular loan repayments.  Top of page

Home Equity Conversion Mortgage (HECM) - the only reverse mortgage program insured by the Federal Housing Administration, a federal government agency.  Top of page

HUD-1 Statement - a document that provides an itemized listing of the funds that are payable at the loan closing.  Top of page

I

Index - the index is the measure of interest rate changes a lender uses to decide the amount an interest rate on an ARM will change over time; Reverse Mortgage rates are tied to the U.S. Treasury rates.  Top of page

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.  Top of page

Interest Rate Ceiling - for an adjustable-rate mortgage (ARM), the maximum interest rate as specified in the mortgage note.  Top of page

Interest Rate Floor - for an adjustable-rate mortgage (ARM), the minimum interest rate as specified in the mortgage note.  Top of page

J Top of page

K Top of page

L

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.  Top of page

Loan advances - payments made to a borrower, or to another party on behalf of a borrower.  Top of page

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.  Top of page

Lump sum - a single loan advance at closing.  Top of page

M

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.  Top of page

Maturity - when a loan must be repaid; when it becomes "due and payable".  Top of page

Mortgage - a legal document that pledges a property to a lender as security for repayment of a debt.  Top of page

Mortgage Banker - a company that originates mortgages exclusively for resale in the secondary mortgage market.  Top of page

Mortgage Broker - an individual or company that brings borrowers and lenders together for the purpose of loan origination.  Top of page

Mortgagor - the borrower in a mortgage agreement.  Top of page

N

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.  Top of page

Note - a legal document that obligates a borrower to repay a mortgage loan.  Top of page

O

Origination - the process of setting up a mortgage, including preparing documents.  Top of page

Origination fee - a fee paid to the lender for originating and processing a loan application. The origination fee is stated in the form of points; two points equals two percent of appraised value, maximum claim amount or adjusted loan amount for Reverse Mortgages.

P

Pre-Approval - the process of determining how much money you will be eligible to borrow before you apply for a loan.  Top of page

Property tax deferral (PTD) - reverse mortgages that pay annual property taxes; usually offered by state of local governments.  Top of page

Proprietary reverse mortgage - a reverse mortgage product owned by a private company.  Top of page

Q Top of page

R

Real Estate Settlement Procedures Act (RESPA) - a consumer protection law that requires lenders to give borrowers advance notice of closing costs.  Top of page

Recording - the noting in the county registrar's office of the details of a properly executed legal document, such as a deed, a mortgage note or a satisfaction of mortgage, thereby making it a part of the public record.  Top of page

Refinance - paying off one loan with the proceeds from a new loan using the same property as security.

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.  Top of page

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.  Top of page

Right of recission - a borrower's right to cancel a home loan within three business days of the closing.  Top of page

S

Set Aside - amounts taken from loan amount and set aside for future costs of servicing, paying taxes or insurances.

Start Rate - one year U.S. Treasury Security weekly index plus mortgage rate margin (determined by lender/Fannie Mae).  Top of page

Secondary Mortgage Market - where existing mortgages are bought and sold.  Top of page

Servicing - administering a loan after closing, such as maintaining loan records and sending statements.  Top of page

Shared equity - shared equity programs are no longer available (Aug 03).  Top of page

Supplemental Security Income (SSI) - a federal monthly income program for low-income persons who are aged 65+, blind, or disabled.  Top of page

T

Tenure Advances - fixed monthly loan advances for as long as a borrower lives in a home.  Top of page

Tem Advances - fixed monthly loan advances for a specific period of time.  Top of page

Total Annual Loan Cost (TALC) Rate - the projected annual average cost of a reverse mortgage including all itemized costs.  Top of page

T-rate - the rate for U.S. Treasury Securities; used to determine the initial, expected, and current interest rates for the HECM program.  Top of page

Truth-in-Lending - a federal law that requires lenders to fully disclose, in writing, the terms and conditions of a mortgage, including the annual percentage rate (APR) and other charges.  Top of page

U

Underwriting - the process of evaluating a loan application to determine the quality of the property and the amount a borrower may borrow.  Top of page

Uninsured reverse mortgage - a reverse mortgage that becomes due and payable on a specific date. Top of page

V W X Y Z Top of page