Glossary of Terms

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  • » 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
  • » AARP Model Specifications
  • Rules recommended by AARP for analyzing and comparing reverse mortgages
  • » Acceleration Clause
  • The part of a contract that says when a loan may be declared due and payable
  • » Adjustable Rate
  • An interest rate that changes, based on changes in a published market-rate index
  • » Annuity
  • A monthly cash payment you get from an insurance company for the rest of your life
  • » Appraisal
  • An estimate of much a house would sell for if it were sold; also called its market value
  • » Appreciation
  • An increase in a home’s value
  • » 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
  • » 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
  • » 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”
  • » 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)
  • » 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
  • » 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)
  • » Fannie Mae
  • A private company that buys and sells mortgages; a government-sponsored business that is watched over by the federal government
  • » Federal Housing Administration (FHA)
  • 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
  • » 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
  • » 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
  • » 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
  • » 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 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”
  • » 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 can never 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 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 Recession
  • 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
  • » 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
  • » 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
  • » Uninsured Reverse Mortgage
  • A reverse mortgage that becomes due and payable on a specific date