Glossary of Reverse Mortgage Terms

Glossary of Reverse Mortgage Terminology 

Presented by Accurate Reverse Mortgage Corp.

Guide to Terms and Definitions for Reverse Mortgages

• Appraisal -  A valuation report that states the appraisers opinion of value of a property as well as the condition of the property being reviewed.
• Adjustable Rate HECM (ARM)  – A HECM which has an interest rate that is subject to change, usually on a monthly or annual basis.
• CMT -  Constant Maturity Treasury is a measure used to estimate the interest rate on a treasury security if it’s issued that day. Mortgage lenders use the CMT rate to help determine the interest rate on an adjustable rate mortgage.
• Counseling - Reverse mortgage counseling is a counseling session that’s required for homeowners who wish to apply for a reverse mortgage.  Homeowners must complete counseling with an approved counselor. The purpose of counseling is to ensure that homeowners understand what’s involved when getting a reverse mortgage as well as the ongoing requirements after closing.
• Disbursement - The release of funds to the borrower, whether as a lump sum, monthly payments, or a line of credit.
• Federal Housing Administration (FHA)
• Foreclosure - The legal process by which a lender takes possession of a property due to default on the reverse mortgage, typically initiated when the borrower no longer lives in the home or defaults on paying the property taxes or homeowners insurance.
• Good Faith Estimate – Lists the approximate closing costs of obtaining a loan.
• Home Equity Conversion Mortgage (HECM) – A reverse mortgage insured by the Federal Housing Administration.
• HECM for Purchase – A HECM that is used to help finance the purchase of the borrower’s principle residence.
• HUD - U.S. Department of Housing and Urban Development (HUD)
• Interest Rate - The rate at which interest accrues on the reverse mortgage loan balance. This rate can be fixed or adjustable.
• Lien - A legal claim or charge on the property that secures the reverse mortgage loan.
• Lender – A bank or institution licensed to originate residential mortgage loans.
• London Interbank Offered Rate (LIBOR) – The average interest rate that leading banks in London charge when lending to other banks.  It is the index used as  the basis for Adjustable Rate HECM's. (now only found on older legacy reverse mortgages)
• Life Expectancy Set-Aside (LESA) - A mandatory (or optional) set-aside of a portion of the loan proceeds to cover future property charges like property taxes and homeowner's insurance.
• Line of Credit (LOC) – A HECM disbursement option whereby the borrower receives the loan proceeds in unscheduled payments or installments, at times and in amounts of the borrower’s choosing, until the line of credit is exhausted.
• Loan Origination Fee - The fee charged by the lender for processing and closing the reverse mortgage loan.
• Lump Sum – Receive all proceeds at loan closing.
• Non-Recourse Loan – In regards to a HECM loan, this term describes the fact that a borrower or their heirs will not owe more than the home is worth when the home is sold to repay the loan.
• Mortgage Insurance Premium (MIP) – Protects the borrower and lender in case the loan balance grows higher than the home value when the loan becomes due.
• Reverse Mortgage – A home loan that allows senior homeowners age 62 and older to access a portion of the equity in their home.
• Servicing – The maintenance of the loan after it is originated. It includes services such as providing regular statements and providing loan disbursements to the borrower as requested.
• Surviving Spouse Provision - A provision allowing the non-borrowing spouse to remain in the home and continue receiving reverse mortgage benefits after the borrowing spouse passes away.
• Tenure payments – Monthly payments throughout the life of the loan.
• Term payments – Equal monthly payments that are disbursed for a specified amount time.
• Total Annual Loan Cost (TALC) – The projected annual average cost of a reverse mortgage, including all the itemized costs.
• Right of rescission – A three business day time period after a loan closes in which a borrower may change their mind and cancel the loan.

• Additional Reverse Mortgage Information Resources California