Glossary of Reverse Mortgage Terminology

A B C D E F G H I J K L M
N O P Q R S T U V W X Y Z

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
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Acceleration Clause: The part of a contract that says when a loan may be declared due and payable
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Actuarial Risk: Uncertainty about how long borrowers will live
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Adjustable rate: An interest rate that changes, based on changes in a published market-rate index.
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Adjustment Date: The date that the interest rate changes on an adjustable-rate mortgage (ARM).
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Adjustment interval: On an adjustable rate mortgage, the time between changes in the interest rate and/or monthly payment, typically one, three or five years depending on the index.
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Adjustment Period: The period elapsing between adjustment dates for an adjustable-rate mortgage (ARM).
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Adjusted property value: The portion of the total appraised value of a property used in determining the borrower’s principal limit for a Home Keeper mortgage. It is equal to the lesser of the Government Sponsored Enterprise loan limit or the appraised value of the property.
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Amortization: The process by which a loan balance decreases over time as principal payments are made
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Annuitant: The person (usually the owner of an annuity) who receives the annuity payouts
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Annuity: A monthly cash payment you get from an insurance company for the rest of your life
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Applied interest rate: The annually or monthly adjusting rate that is charged to the HECM borrower’s loan balance.Typically the 1 year Treasury Bill plus your margin.
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Appraisal: An estimate of the value of property, made by a qualified professional called an "appraiser". Also called its market value
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Appraised Value: An opinion of a property's fair market value, based on an appraiser's knowledge, experience, and analysis of the property.
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Appreciation: an increase in a home's value
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Area Agency on Aging (AAA): a local or regional nonprofit organization that provides information on services and programs for older adults
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Assessment: A local tax levied against a property for a specific purpose, such as a sewer or street lights.
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Assessed value: TThe valuation placed upon property by a public tax assessor for purposes of taxation. This may not always be equal to the appraised or market value of the property
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Average annual percentage rate: The actual interest rate (or the total yearly cost of the mortgage stated as a percentage of the loan amount), which takes into account the base interest rate and the costs of primary mortgage insurance and loan origination fees (or points)
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Cap: A limit on the amount an adjustable interest rate may go up or down during a specified time period
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Clear title: Ownership of the property that is free of liens and legal questions as to ownership of the property.
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Closing: The occasion when a borrower signs loan documents, including the mortgage or deed of trust, and when closing costs are paid. Also called “settlement.”
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Closing Costs: The costs to a borrower to obtain a mortgage loan. These costs may include an origination fee, title insurance, appraisal, survey, attorney fees, and prepaid items such as taxes and insurance.
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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
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Contingency: A condition that must be met before a contract is legally binding; something liable to happen
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Counseling session: An information session that takes place prior to loan application and that covers the following topics with the potential borrowers: eligibility, loan amount, loan costs, borrower responsibilities, loan repayment, sources of disinterested consumer information on reverse mortgages, and other options for older homeowners
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Creditline: 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."
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Credit report: A report of an individual’s credit history prepared by a credit bureau and used by a lender in determining a loan applicant’s creditworthiness. For HECMs, the credit report is used only to determine if there are liens against the property
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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)
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Credit Report: A report documenting the credit history and current status of a borrower's credit standing.
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Deed: The legal document conveying title to a property.
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Deed of trust: In many states, this document is used in place of a mortgage to secure the payment of a note.
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Default.: Failure to make mortgage payments on a timely basis or to comply with other conditions of a mortgage loan. This can lead to foreclosure.
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Deferred payment loan (DPLs): reverse mortgages that give you a lump sum of cash to repair or improve a home; usually offered by state or local governments
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Deficiency judgment: A judgment for the balance of a debt after the collateral has been exhausted.
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Depreciation: A decrease in the value of a home
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Equity: The difference between the market value of a property and the homeowner’s outstanding mortgage balance or other claims against the property.
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Escrow: An account held by the lender into which the home buyer pays money for tax or insurance payments. Also earnest deposits held pending loan closing.
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Escrow Disbursements: The use of escrow funds to pay real estate taxes, hazard insurance, mortgage insurance, and other property expenses as they become due.
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Expected interest rate: The interest rate used to determine the amount of money available to the HECM borrower at loan closing - 10 year Treasury Bill plus your margin. Not the same as the “applied interest rate” (the interest rate charged to the borrower’s loan balance).
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Estate taxes: Federal death taxes on the assets and other holdings that make up the taxable base of the deceased
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Fannie Mae: A private company that buys and sells mortgages; a government-sponsored business that is watched over by the federal government
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Federal Housing Administration (FHA): The part of the U. S. Department of Housing and Urban Development (HUD) that insures HECM loans
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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)
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Federal National Mortgage Association (FNMA) also know as "Fannie Mae": A tax-paying corporation created by Congress that purchases and sells conventional residential mortgages as well as those insured by FHA or guaranteed by VA. This institution, which provides funds for one in seven mortgages, makes mortgage money more available and more affordable.
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Fixed monthly loan advances: Payments of the same amount that are made to a borrower each month
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Flood insurance: Insurance required for properties in federally-designated flood areas
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FNMA: The Federal National Mortgage Association is a secondary mortgage institution which is the largest single holder of home mortgages in the United States. FNMA buys VA, FHA, and conventional mortgages from primary lenders. Also known as "Fannie Mae."
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Foreclosure: The process by which a lender sells a mortgaged property (in order to be repaid) if the mortgage loan is in default or the borrower fails to comply with the terms and conditions of the mortgage note.
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Funding date: The date on which the originating lender first disburses funds to the reverse mortgage borrower
Hazard Insurance: Insurance to protect the homeowner and the lender against physical damage to a property from fire, wind, vandalism, or other hazards
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Home equity: The value of a home, subtracting any money owed on it
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Home equity conversion: Turning home equity into cash without having to leave your home or make regular loan repayments
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Home Equity Conversion Mortgage (HECM): The only reverse mortgage program insured by the Federal Housing Administration, a federal government agency
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Home equity loan (or line of credit): A loan that allows a homeowner to borrow against home equity and pay back the funds in monthly installments; generally, the homeowner must meet income qualifications and the lender can foreclose on the home if the borrower fails to make monthly payments
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Homeowner’s insurance: An insurance policy that combines liability coverage and hazard insurance
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HUD: U.S. Department of Housing and Urban Development
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Index: A published interest rate against which lenders measure the difference between the current interest rate on an adjustable rate mortgage and that earned by other investments (such as one- three-, and five-year U.S. Treasury security yields, the monthly average interest rate on loans closed by savings and loan institutions, and the monthly average costs-of-funds incurred by savings and loans), which is then used to adjust the interest rate on an adjustable mortgage up or down.
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Indexed rate: The sum of the published index plus the margin. For example if the index were 9% and the margin 2.75%, the indexed rate would be 11.75%. Often, lenders charge less than the indexed rate the first year of an adjustable-rate mortgage.
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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
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Insured Mortgage: A mortgage that is protected by the Federal Housing Administration (FHA) or by private mortgage insurance (MI).
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Interest: The fee charged for borrowing money.
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irrevocable trust: A trust that cannot be revoked, cancelled, rescinded or made void by anyone
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irrevocable life insurance trust: a trust set up to remove life insurance and its death benefits from the taxable base of the deceased in order to avoid estate taxes
Jumbo Loan: A loan which is larger than the county limits set by the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation. Because jumbo loans cannot be funded by these two agencies, they usually carry a higher interest rate.
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Late Charge: The penalty the lender must pay when a payment is made a stated number of days after the due date.
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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
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Liabilities: Amounts owed. Liabilities include long-term and short-term debt.
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Lien: A claim upon a piece of property for the payment for satisfaction of a debt or obligation.
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Loan advances: Payments made to a borrower, or to another party on behalf of a borrower
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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.
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Loan proceeds: Payments to a borrower through a reverse mortgage
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Loan termination: The point at which a reverse mortgage loan is satisfied, either because of a prepayment in full or because a loan has become due and payable, and the borrower has paid the loan balance or the value of the property, whichever is less
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Loan-to-Value Ratio: The relationship between the amount of the mortgage loan and the appraised value of the property expressed as a percentage.
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Lock: Lender's guarantee that the mortgage rate quoted will be good for a specific number of days from day of application.
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Lump sum: A single loan advance at closing
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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
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Market Value: The highest price that a buyer would pay and the lowest price a seller would accept on a property. Market value may be different from the price a property could actually be sold for at a given time.
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Maturity: The date on which the principal balance of a loan becomes due and payable.
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Maximum claim amount: The lesser of a home’s appraised value or the maximum loan amount that can be insured by the FHA for one- to four-family residences in the area where the property is located. All HECM's use the single family limit
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Mortgage: A legal document making a home available to a lender to repay a debt. Also known as “deed of Trust” in most Western States
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Mortgage Insurance Premium(MIP): The fee paid by a borrower to FHA or a private insurer for mortgage insurance. It is insurance from FHA to the lender against incurring a loss on account of the lender's default.
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Mortgage note: A legal document obligating a borrower to repay a loan at a stated interest rate; the agreement is secured by a mortgage.
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Mortgagee: The lender.
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Mortgagor: The borrower or homeowner.
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Net principal limit: The total amount of money available to the borrower at any time over the life of the loan. An amount equal to the principal limit less any payments to the borrower and any financed costs
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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
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One-Year Treasury rate: The interest rate on the One-year Treasury Note; used to determine the expected interest rate that is used to calculate the Principal amount
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Origination Fee: A fee charged to the borrower to obtain a mortgage loan. Each loan product may differ: HECM – the greater of $2000 or 2% of the Maximum Claim Amount Home Keeper – the greater of $2000 or 2% of the Adjusted Property Value Jumbo Reverse Mortgage Loans – a scaled percentage of the home value to a maximum of 2%
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Payment plan: The manner in which loan proceeds are paid out to the borrower
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Power of Attorney: A legal document that gives the designated holder the right to act on the behalf of or do something for the named person
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Prepayment: A privilege in a mortgage permitting the borrower to make payments in advance of their due date.
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Principal Balance: The amount owed; the sum of all loan advances, accrued interest, MIP and all fees, capped in a reverse mortgage by the value of the home when the loan is repaid
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Principal limit: The initial loan amount of a reverse mortgage, which grows over time at the same rate at which the loan balances accrue interest and MIP; calculated by using the age of the youngest borrower, current interest rates and the maximum claim amount
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Probate: The legal process to prove the validity of a will, also the word used to describe the entire legal process that occurs when a person dies with or without a will
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Property inspection: An examination of the exterior and interior of a property to determine its condition
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Property tax deferral (PTD): Reverse mortgages that pay annual property taxes; usually offered by state or local governments
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Proprietary reverse mortgage: A reverse mortgage product owned by a private company, such as a Jumbo.
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Rate Lock: A commitment issued by a lender to a borrower or other mortgage originator guaranteeing a specified interest rate and lender costs for a specified period of time.
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Recording Fees: Money paid to the lender for recording a home sale with the local authorities, thereby making it part of the public records.
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Refinancing: The process of paying off one loan with the proceeds from a new loan secured by the same property. Reverse Mortgages can be refinanced,
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Repair rider: A clause in a reverse mortgage loan agreement that requires a homeowner to make home repairs or improvements as a condition of closing the loan
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Required repairs: Any repairs identified in the property inspection relating to structural problems, needed roof repair or other property damage that could decrease the value of the property if left untreated
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Reverse mortgage: A mortgage that pays a homeowner loan proceeds drawn from accumulated home equity; reverse mortgages permit the borrower to retain homeownership, and generally do not require repayment as long as the borrower remains in the home. It is capped by the value of the home when the loan is repaid
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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
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Revocable trust: A trust where a designated person is given the power to change or revoke the document
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Right of Recission: A borrower's right to cancel a home loan within three business days of the closing
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Rising debt.: In a reverse mortgage, debt that increases over time as loan proceeds are paid out and as interest accrues on principal loan balance. Reverse equity mortgage don't always have rising debt and falling equity. If a home's value grows rapidly, your equity could increase over time. Or, if you only get one loan advance and no interest is charged on it, your debt would never change. So your equity would grow as your home's value increases. But most home values don't grow at consistently high rates, and interest is charged on most mortgages. In short, a reverse equity mortgage is a "rising debt, falling equity" type of deal.
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Satisfaction of Mortgage: The document issued by the mortgagee when the mortgage loan is paid in full. Also called a "release of mortgage."
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Servicer: An organization that collects principal and interest payments from borrowers and manages borrowers’ escrow accounts. The servicer often services mortgages that have been purchased by an investor in the secondary mortgage market.
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Servicing: administering a loan after closing, such as maintaining loan records and sending statements
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Servicing fee: This is a small fee reserved from the loan proceeds to cover record-keeping, payment processing, and other administrative associated with servicing the loan
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Set aside: Funds for specified uses that are netted out when determining the borrower’s principal limit
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Settlement/Settlement Costs: see closing/closing costs
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Supplemental Security Income (SSI): a federal monthly income program for low-income persons who are aged 65+, blind, or disabled
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Survey: A drawing showing the legal boundaries of a property
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Tenure Advances: Fixed monthly loan advances for as long as a borrower lives in a home
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Term Advances: Fixed monthly loan advances for a specific period of time
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Testamentary Trust: A trust that is contained inside of a will
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Title: A document that gives evidence of an individual's ownership of property.
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Title Insurance: A policy, usually issued by a title insurance company, which insures a home buyer against errors in the title search. The cost of the policy is usually a function of the value of the property, and is often borne by the purchaser and/or seller. Policies are also available to protect the lender's interests.
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Title Search: An examination of municipal records to determine the legal ownership of property and that there are no liens or other claims outstanding on the property. Usually is performed by a title company.
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Total Annual Loan Cost (TALC) rate: The projected annual average cost of a reverse mortgage including all itemized costs
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T-rate: The rate for U.S. Treasury Securities; used to determine the initial, expected, and current interest rates for the HECM program
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Trust: A legal document that transfers title of a property to an individual or entity for the benefit of another person or entity
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Trustee: The person or entity named to carry out the instructions contained in the trust document. The trustee also holds legal title to the trust property
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Underwriting: The decision whether to make a loan to a potential borrower.
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See also AARP's glossary

PDF of glossary





Karen Kennedy Reverse Mortgage Specialist Griffin Financial Mortgage The Reverse Mortgage Source™ 4624-B Junius St. Dallas TX 75246 214.233.4435 toll free: 877.255.5753 email: info@kloanranger.com		HOME • FAST FACTS • USEFUL LINKS • GLOSSARY Glossary of Reverse Mortgage Terminology A B C D E F G H I J K L M N O P Q R S T U V W X Y Z 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 TOP Acceleration Clause The part of a contract that says when a loan may be declared due and payable TOP Actuarial Risk Uncertainty about how long borrowers will live TOP Adjustable rate An interest rate that changes, based on changes in a published market-rate index. TOP Adjustment Date The date that the interest rate changes on an adjustable-rate mortgage (ARM). TOP Adjustment interval On an adjustable rate mortgage, the time between changes in the interest rate and/or monthly payment, typically one, three or five years depending on the index. TOP Adjustment Period The period elapsing between adjustment dates for an adjustable-rate mortgage (ARM). TOP Adjusted property value The portion of the total appraised value of a property used in determining the borrower’s principal limit for a Home Keeper mortgage. It is equal to the lesser of the Government Sponsored Enterprise loan limit or the appraised value of the property. TOP Amortization The process by which a loan balance decreases over time as principal payments are made TOP Annuitant The person (usually the owner of an annuity) who receives the annuity payouts TOP Annuity A monthly cash payment you get from an insurance company for the rest of your life TOP Applied interest rate The annually or monthly adjusting rate that is charged to the HECM borrower’s loan balance.Typically the 1 year Treasury Bill plus your margin. TOP Appraisal An estimate of the value of property, made by a qualified professional called an "appraiser". Also called its market value TOP Appraised Value An opinion of a property's fair market value, based on an appraiser's knowledge, experience, and analysis of the property. TOP Appreciation an increase in a home's value TOP Area Agency on Aging (AAA) a local or regional nonprofit organization that provides information on services and programs for older adults TOP Assessment A local tax levied against a property for a specific purpose, such as a sewer or street lights. TOP Assessed value TThe valuation placed upon property by a public tax assessor for purposes of taxation. This may not always be equal to the appraised or market value of the property TOP Average annual percentage rate The actual interest rate (or the total yearly cost of the mortgage stated as a percentage of the loan amount), which takes into account the base interest rate and the costs of primary mortgage insurance and loan origination fees (or points) TOP Cap A limit on the amount an adjustable interest rate may go up or down during a specified time period TOP Clear title Ownership of the property that is free of liens and legal questions as to ownership of the property. TOP Closing The occasion when a borrower signs loan documents, including the mortgage or deed of trust, and when closing costs are paid. Also called “settlement.” TOP Closing Costs The costs to a borrower to obtain a mortgage loan. These costs may include an origination fee, title insurance, appraisal, survey, attorney fees, and prepaid items such as taxes and insurance. TOP 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 TOP Contingency A condition that must be met before a contract is legally binding; something liable to happen TOP Counseling session An information session that takes place prior to loan application and that covers the following topics with the potential borrowers: eligibility, loan amount, loan costs, borrower responsibilities, loan repayment, sources of disinterested consumer information on reverse mortgages, and other options for older homeowners TOP Creditline 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." TOP Credit report A report of an individual’s credit history prepared by a credit bureau and used by a lender in determining a loan applicant’s creditworthiness. For HECMs, the credit report is used only to determine if there are liens against the property TOP 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) TOP Credit Report A report documenting the credit history and current status of a borrower's credit standing. TOP Deed The legal document conveying title to a property. TOP Deed of trust In many states, this document is used in place of a mortgage to secure the payment of a note. TOP Default. Failure to make mortgage payments on a timely basis or to comply with other conditions of a mortgage loan. This can lead to foreclosure. TOP Deferred payment loan (DPLs) reverse mortgages that give you a lump sum of cash to repair or improve a home; usually offered by state or local governments TOP Deficiency judgment A judgment for the balance of a debt after the collateral has been exhausted. TOP Depreciation A decrease in the value of a home TOP Equity The difference between the market value of a property and the homeowner’s outstanding mortgage balance or other claims against the property. TOP Escrow An account held by the lender into which the home buyer pays money for tax or insurance payments. Also earnest deposits held pending loan closing. TOP Escrow Disbursements The use of escrow funds to pay real estate taxes, hazard insurance, mortgage insurance, and other property expenses as they become due. TOP Expected interest rate The interest rate used to determine the amount of money available to the HECM borrower at loan closing - 10 year Treasury Bill plus your margin. Not the same as the “applied interest rate” (the interest rate charged to the borrower’s loan balance). TOP Estate taxes Federal death taxes on the assets and other holdings that make up the taxable base of the deceased TOP Fannie Mae A private company that buys and sells mortgages; a government-sponsored business that is watched over by the federal government TOP Federal Housing Administration (FHA) The part of the U. S. Department of Housing and Urban Development (HUD) that insures HECM loans TOP 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) TOP Federal National Mortgage Association (FNMA) also know as "Fannie Mae" A tax-paying corporation created by Congress that purchases and sells conventional residential mortgages as well as those insured by FHA or guaranteed by VA. This institution, which provides funds for one in seven mortgages, makes mortgage money more available and more affordable. TOP Fixed monthly loan advances Payments of the same amount that are made to a borrower each month TOP Flood insurance Insurance required for properties in federally-designated flood areas TOP FNMA The Federal National Mortgage Association is a secondary mortgage institution which is the largest single holder of home mortgages in the United States. FNMA buys VA, FHA, and conventional mortgages from primary lenders. Also known as "Fannie Mae." TOP Foreclosure The process by which a lender sells a mortgaged property (in order to be repaid) if the mortgage loan is in default or the borrower fails to comply with the terms and conditions of the mortgage note. TOP Funding date The date on which the originating lender first disburses funds to the reverse mortgage borrower Hazard Insurance Insurance to protect the homeowner and the lender against physical damage to a property from fire, wind, vandalism, or other hazards TOP Home equity The value of a home, subtracting any money owed on it TOP Home equity conversion Turning home equity into cash without having to leave your home or make regular loan repayments TOP Home Equity Conversion Mortgage (HECM) The only reverse mortgage program insured by the Federal Housing Administration, a federal government agency TOP Home equity loan (or line of credit) A loan that allows a homeowner to borrow against home equity and pay back the funds in monthly installments; generally, the homeowner must meet income qualifications and the lender can foreclose on the home if the borrower fails to make monthly payments TOP Homeowner’s insurance An insurance policy that combines liability coverage and hazard insurance TOP HUD U.S. Department of Housing and Urban Development TOP Index A published interest rate against which lenders measure the difference between the current interest rate on an adjustable rate mortgage and that earned by other investments (such as one- three-, and five-year U.S. Treasury security yields, the monthly average interest rate on loans closed by savings and loan institutions, and the monthly average costs-of-funds incurred by savings and loans), which is then used to adjust the interest rate on an adjustable mortgage up or down. TOP Indexed rate The sum of the published index plus the margin. For example if the index were 9% and the margin 2.75%, the indexed rate would be 11.75%. Often, lenders charge less than the indexed rate the first year of an adjustable-rate mortgage. TOP 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 TOP Insured Mortgage A mortgage that is protected by the Federal Housing Administration (FHA) or by private mortgage insurance (MI). TOP Interest The fee charged for borrowing money. TOP irrevocable trust A trust that cannot be revoked, cancelled, rescinded or made void by anyone TOP irrevocable life insurance trust a trust set up to remove life insurance and its death benefits from the taxable base of the deceased in order to avoid estate taxes Jumbo Loan A loan which is larger than the county limits set by the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation. Because jumbo loans cannot be funded by these two agencies, they usually carry a higher interest rate. TOP Late Charge The penalty the lender must pay when a payment is made a stated number of days after the due date. TOP 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 TOP Liabilities Amounts owed. Liabilities include long-term and short-term debt. TOP Lien A claim upon a piece of property for the payment for satisfaction of a debt or obligation. TOP Loan advances Payments made to a borrower, or to another party on behalf of a borrower TOP 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. TOP Loan proceeds Payments to a borrower through a reverse mortgage TOP Loan termination The point at which a reverse mortgage loan is satisfied, either because of a prepayment in full or because a loan has become due and payable, and the borrower has paid the loan balance or the value of the property, whichever is less TOP Loan-to-Value Ratio The relationship between the amount of the mortgage loan and the appraised value of the property expressed as a percentage. TOP Lock Lender's guarantee that the mortgage rate quoted will be good for a specific number of days from day of application. TOP Lump sum A single loan advance at closing TOP 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 TOP Market Value The highest price that a buyer would pay and the lowest price a seller would accept on a property. Market value may be different from the price a property could actually be sold for at a given time. TOP Maturity The date on which the principal balance of a loan becomes due and payable. TOP Maximum claim amount The lesser of a home’s appraised value or the maximum loan amount that can be insured by the FHA for one- to four-family residences in the area where the property is located. All HECM's use the single family limit TOP Mortgage A legal document making a home available to a lender to repay a debt. Also known as “deed of Trust” in most Western States TOP Mortgage Insurance Premium(MIP) The fee paid by a borrower to FHA or a private insurer for mortgage insurance. It is insurance from FHA to the lender against incurring a loss on account of the lender's default. TOP Mortgage note A legal document obligating a borrower to repay a loan at a stated interest rate; the agreement is secured by a mortgage. TOP Mortgagee The lender. TOP Mortgagor The borrower or homeowner. TOP Net principal limit The total amount of money available to the borrower at any time over the life of the loan. An amount equal to the principal limit less any payments to the borrower and any financed costs TOP 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 TOP One-Year Treasury rate The interest rate on the One-year Treasury Note; used to determine the expected interest rate that is used to calculate the Principal amount TOP Origination Fee A fee charged to the borrower to obtain a mortgage loan. Each loan product may differ: HECM – the greater of $2000 or 2% of the Maximum Claim Amount Home Keeper – the greater of $2000 or 2% of the Adjusted Property Value Jumbo Reverse Mortgage Loans – a scaled percentage of the home value to a maximum of 2% TOP Payment plan The manner in which loan proceeds are paid out to the borrower TOP Power of Attorney A legal document that gives the designated holder the right to act on the behalf of or do something for the named person TOP Prepayment A privilege in a mortgage permitting the borrower to make payments in advance of their due date. TOP Principal Balance The amount owed; the sum of all loan advances, accrued interest, MIP and all fees, capped in a reverse mortgage by the value of the home when the loan is repaid TOP Principal limit The initial loan amount of a reverse mortgage, which grows over time at the same rate at which the loan balances accrue interest and MIP; calculated by using the age of the youngest borrower, current interest rates and the maximum claim amount TOP Probate The legal process to prove the validity of a will, also the word used to describe the entire legal process that occurs when a person dies with or without a will TOP Property inspection An examination of the exterior and interior of a property to determine its condition TOP Property tax deferral (PTD) Reverse mortgages that pay annual property taxes; usually offered by state or local governments TOP Proprietary reverse mortgage A reverse mortgage product owned by a private company, such as a Jumbo. TOP Rate Lock A commitment issued by a lender to a borrower or other mortgage originator guaranteeing a specified interest rate and lender costs for a specified period of time. TOP Recording Fees Money paid to the lender for recording a home sale with the local authorities, thereby making it part of the public records. TOP Refinancing The process of paying off one loan with the proceeds from a new loan secured by the same property. Reverse Mortgages can be refinanced, TOP Repair rider A clause in a reverse mortgage loan agreement that requires a homeowner to make home repairs or improvements as a condition of closing the loan TOP Required repairs Any repairs identified in the property inspection relating to structural problems, needed roof repair or other property damage that could decrease the value of the property if left untreated TOP Reverse mortgage A mortgage that pays a homeowner loan proceeds drawn from accumulated home equity; reverse mortgages permit the borrower to retain homeownership, and generally do not require repayment as long as the borrower remains in the home. It is capped by the value of the home when the loan is repaid TOP 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 TOP Revocable trust A trust where a designated person is given the power to change or revoke the document TOP Right of Recission A borrower's right to cancel a home loan within three business days of the closing TOP Rising debt. In a reverse mortgage, debt that increases over time as loan proceeds are paid out and as interest accrues on principal loan balance. Reverse equity mortgage don't always have rising debt and falling equity. If a home's value grows rapidly, your equity could increase over time. Or, if you only get one loan advance and no interest is charged on it, your debt would never change. So your equity would grow as your home's value increases. But most home values don't grow at consistently high rates, and interest is charged on most mortgages. In short, a reverse equity mortgage is a "rising debt, falling equity" type of deal. TOP Satisfaction of Mortgage The document issued by the mortgagee when the mortgage loan is paid in full. Also called a "release of mortgage." TOP Servicer An organization that collects principal and interest payments from borrowers and manages borrowers’ escrow accounts. The servicer often services mortgages that have been purchased by an investor in the secondary mortgage market. TOP Servicing administering a loan after closing, such as maintaining loan records and sending statements TOP Servicing fee This is a small fee reserved from the loan proceeds to cover record-keeping, payment processing, and other administrative associated with servicing the loan TOP Set aside Funds for specified uses that are netted out when determining the borrower’s principal limit TOP Settlement/Settlement Costs see closing/closing costs TOP Supplemental Security Income (SSI) a federal monthly income program for low-income persons who are aged 65+, blind, or disabled TOP Survey A drawing showing the legal boundaries of a property TOP Tenure Advances Fixed monthly loan advances for as long as a borrower lives in a home TOP Term Advances Fixed monthly loan advances for a specific period of time TOP Testamentary Trust A trust that is contained inside of a will TOP Title A document that gives evidence of an individual's ownership of property. TOP Title Insurance A policy, usually issued by a title insurance company, which insures a home buyer against errors in the title search. The cost of the policy is usually a function of the value of the property, and is often borne by the purchaser and/or seller. Policies are also available to protect the lender's interests. TOP Title Search An examination of municipal records to determine the legal ownership of property and that there are no liens or other claims outstanding on the property. Usually is performed by a title company. TOP Total Annual Loan Cost (TALC) rate The projected annual average cost of a reverse mortgage including all itemized costs TOP T-rate The rate for U.S. Treasury Securities; used to determine the initial, expected, and current interest rates for the HECM program TOP Trust A legal document that transfers title of a property to an individual or entity for the benefit of another person or entity TOP Trustee The person or entity named to carry out the instructions contained in the trust document. The trustee also holds legal title to the trust property TOP Underwriting The decision whether to make a loan to a potential borrower. TOP See also AARP's glossary PDF of glossary HOME • FAST FACTS • USEFUL LINKS • GLOSSARY email info@kloanranger.com
© 2007 Karen Kennedy. All rights reserved.

Glossary of Reverse Mortgage Terminology

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A B C D E F G H I J K L M
N O P Q R S T U V W X Y Z