Reverse Mortgage Glossary

Adjustable Rate
An interest rate that changes based on changes in a published market-rate index.

APR
A measure of the total cost of the loan expressed as a yearly percentage rate. APRs are calculated by the lender.

Appraisal
An estimate of how much a house would sell for if it were sold. This is also referred to as the home’s market value.

Appreciation
An increase in a home's value.

Cap
A limit on the amount an adjustable interest rate may increase or decrease during a specified time period. (Generally noted as two numbers, the first is the maximum increase allowed for one adjustment period; the second is the total increase allowed over the life of the loan.)

Closing
A meeting where documents are signed to "close the deal" on a mortgage. It is also the time a mortgage begins.

Expected Interest Rate - HECM program
The expected rate is fixed throughout the life of the loan and is used to determine payments to the borrower.

Federal Housing Administration (FHA)
The division of the U. S. Department of Housing (HUD) that insures HECM loans.

Fixed Monthly Loan Advances
Payments of a consistent amount made to the borrower each month.

Fully Indexed Rate
The current Index Rate plus the Margin on an adjustable rate mortgage.

Home Equity
The value of a home, less any money owed on it.

Home Equity Conversion Mortgage or HECM
The only reverse mortgage program insured by the Federal Housing Administration (FHA).

Index
The basis for setting an adjustable rate.

Initial Interest Rate - HECM Program
Beginning at closing, the interest rate that is first charged on the loan. This rate equals the one-year rate for U.S. Treasury Securities, plus a margin.

Jumbo Loan
Generally, a mortgage product offered to individuals who have higher-valued homes. Jumbo loans offer a higher payout compared to HECM loan limits.

Leftover Equity
The sale price of the home, less the total amount owed on it and any costs related to the sale of it. Leftover equity is the amount the homeowner, heirs or estate would get when the house is sold and the loan is paid off.

LIBOR or the London Interbank Offered Rate
A daily reference rate based on the interest rates at which banks offer to lend unsecured funds to other banks in the London wholesale money market (or interbank market).

Line of Credit or LOC
The amount of money available from the loan for future draws.

Loan To Value (LTV)
A percentage of your home value, LTV is the amount available to borrow.

Lump Sum
A single loan advance at closing.

Margin
Used to calculate the loan's monthly interest rate (Margin + Index = Fully Indexed Rate) when the loan adjusts, this margin varies from lender to lender.

Maturity
Maturity is when a loan must be repaid.

Mortgage Insurance Premium (MIP) - HECM Program
The premium paid for required mortgage insurance, whereby the government guarantees homeowner has access to funds if loan issuer goes out of business.

Non-recourse Mortgage
A HECM reverse mortgage is a "non-recourse loan". This means that the HECM borrower (or his or her estate) will never owe more than the loan balance or value of the property, whichever is less, and no assets other than the home will be used to repay the debt.

Origination
The process of setting up a mortgage, including preparing documents.

Origination Fee
A one-time fee paid to the lender at the time the loan closes.

Proprietary Reverse Mortgage
Proprietary reverse mortgage is a reverse mortgage product owned by a private company.

Reverse Mortgage
A home loan that provides 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.

Servicing
The administration of a loan after closing, such as maintaining loan records and sending statements.

Tenure Advances
These advances are equal monthly payments that are made for as long as at least one of the borrowers continues to occupy the property as a principal residence.

Term Advances
Advances that are equal monthly payments for a predetermined, fixed period of time.

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