This glossary of terms can help you clearly understand reverse mortgages throughout your loan research, application, closing, and borrowing processes.
A report that states an opinion on the value of a property based on its characteristics and the selling prices of similar properties in the area.
A line of credit that you can make prepayments on, but those funds would not be available for future use.
A service provided by an independent third-party, typically approved by the U.S. Department of Housing and Urban Development, to make sure the borrower fully understands the reverse mortgage and reviews alternative options, prior to application. Mandatory for the HECM program and in certain states for all types of reverse mortgages.
A feature offered in proprietary reverse mortgages that allows a borrower to receive more funds, or pay a lower interest rate, in exchange for giving up a percentage of the home’s future value. No longer offered in any reverse mortgage programs.
Amount of funds you are eligible to receive from a reverse mortgage before closing costs are deducted.
Expected Interest Rate: The interest rate used to calculate the principal limit. It equals either the 10-year CMT or the 10-year LIBOR rate plus a margin.
Actual Interest Rate: The interest rate first charged on the loan beginning at closing; it equals one of the HUD- approved interest rate indices (1-month CMT, 1-year CMT, or 1-month LIBOR) plus a margin. Also called Initial Interest Rate.
Interest Rate Structure:
Variable Rate: An interest rate that adjusts monthly or annually.
Fixed Rate: An interest rate that remains constant over the life a the loan.
In some cases, the available line of credit increases over time according to the terms of the loan agreement.
Date on which your reverse mortgage is scheduled to close.
The lesser of a home's appraised value or the maximum loan limit that can be insured by FHA. Used in determining the principal limit.
Under the HECM program, a fee charged to borrowers that is equal to a small percentage of the maximum claim amount, plus an annual premium thereafter on the loan balance. The MIP guarantees that if the lender goes out of business, FHA will step in and ensure the borrower has continued access to his or her loan funds. The MIP further guarantees that when the property is sold to pay back the reverse mortgage, the borrower will never owe more than the value of the home.
A fee charged by the loan servicer for administering a loan after closing, such as disbursing loan funds, maintaining loan records and sending statements
Amount of funds you are eligible to receive at closing after loan costs have been deducted.
A feature that limits the amount owed by the borrower, heirs or estate when the loan becomes due and payable to the appraised home value. For the HECM program, non-recourse only applies when the home is sold.
A line of credit that allows the borrower to withdrawal funds, make payments back to the lender, and then have the ability to make subsequent withdrawals.
A fee charged by the lender to cover its expenses for originating the loan. Cannot be more than 2% on the initial $200,000 of maximum claim amount and 1% on the balance thereafter with a cap of $6,000.
Paying off a reverse mortgage early (that is, before the borrower permanently vacates the property). Under the HECM program, there is no penalty for paying all, or a portion, of the loan prematurely.
The total loan proceeds available at closing.
A feature that allows borrowers to lock-in the principal limit for a specific period of time.