Reverse Mortgage- Terms and Definitions

Annual Percentage Rate – APR
The Annual Percentage Rate (APR) is the cost of a mortgage stated as a yearly rate. This includes things like mortgage insurance, loan origination fee (points) and interest.

Annuity
An Annuity is a monthly cash payment from an insurance company. You will receive cash payments monthly for the rest of your life.

Closing
This occurs at the end of the loan process and involves a meeting to sign documents and close the deal on a mortgage loan.

Credit Line
A credit account that gives the borrower deciding power of when and how much money they wish to take out at a given time.

FHA
The Federal Housing Administration (FHA) was created with the intent to regulate interest rates and mortgage terms on the loans that it insured.

Good Faith Estimate
A Good Faith Estimate (GFE) is a report from your lender that outlines all costs included in your mortgage. It is based on the lender’s typical loan origination costs for the area where your home is located.

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

Home Equity Conversion Mortgage (HECM)
A Federal Housing Administration (FHA) insured reverse mortgage program.

HUD
The U.S. Department of Housing and Urban Development.

Initial Interest Rate
The Initial Interest Rate is the rate that is first charged on the loan beginning at closing in the HECM program. It equals the one year rate for U.S. Treasury Securities, plus a margin.

Line of Credit – LOC
Same as a Credit Line—A credit account that gives the borrower deciding power of when and how much money they wish to take out at a given time.

Lump Sum
A single loan advance at closing.

Margin
In the HECM program, This is the amount added to the one year Treasury rate to determine the initial and current interest rates in the HECM program. When it is added to the 10 year Treasury rate it determines the expected interest rate.

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
This is the administrative process of setting up a mortgage loan, including the preparation of all documents.

Reverse Mortgage
A non-recourse home loan that gives cash advances to a homeowner aged 62 or older against the home equity with no income or credit requirements. There are no repayments required until a future time (home is sold, homeowner permanently moves or passes away) and repayment is capped by the value of the home when the loan is repaid.

Reverse Mortgage Counseling
Reverse Mortgage Counseling is required as a borrower’s insurance for the Home Equity Conversion Mortgage (HECM) program. The informal counseling session explains how the HECM financing option works and during counseling, you will receive an estimate of your loan advances and an explanation of your responsibilities as a borrower.

Right of Rescission
A borrower’s right to cancel a home loan within three business days of the closing.

Tenure Advances
Fixed-monthly loan advances for as long as the borrower lives in the home.

Term Advances
Fixed-monthly loan advances for a specific period of time.

Title Search
This includes checking the title records to ensure the seller is the legal owner of the property and that there are no liens (legal claims against a property filed by creditors as a means to collect unpaid bills) attached to the property. Liens can also be filed by the Internal Revenue Service (IRS) for nonpayment of taxes. Any such claims must be paid by the seller, this often occurs either before or at the closing.

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