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Reverse Mortgage Terms

(continued from Reverse Mortgage Terms A-F)...

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 Recission - 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

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