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