Glossary

Acceleration Clause – the part of a contract that says when a loan may be declared due and payable.

Adjustable Rate – an interest rate that changes, based on changes in a published market-rate index.

Appraisal – an estimate of much a house would sell for if it were sold; also called its market value.

Appreciation – an increase in a home’s value.

Area Agency on Aging (AAA) – a local or regional nonprofit organization that provides information on services and programs for older adults.

Cap – a limit on the amount an adjustable interest rate may go up or down during a specified time period.

Closing – a meeting where documents are signed to “close the deal” on a mortgage; the time a mortgage begins.

CMT Rate – the Constant Maturity Treasury rate, used as an interest rate index in the HECM program.

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.

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.”.

Current Interest Rate – in the HECM program, the interest rate currently being charged on a loan, which equals one of the HUD-approved interest rate indices (1-month CMT, 1-year CMT, or 1-month LIBOR) plus a margin.

Deferred Payment Loans (DPLs) – reverse mortgages that give you a lump sum of cash to repair or improve a home; usually offered by state or local governments.

Depreciation – a decrease in the value of a home.

Eminent Domain – the right of a government to take private property for public use; for example, taking private land to build a highway.

Expected Interest Rate – in the HECM program, the interest rate used to determine a borrower’s loan advance amounts; it equals either the 10-year CMT or the 10-year LIBOR rate plus a margin (see below).

Fannie Mae – a private company that buys and sells mortgages; a government-sponsored business that is watched over by the federal government.

Federal Housing Administration (FHA) – the part of the U. S. Department of Housing and Urban Development (HUD) that insures HECM loans.

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).

Fixed Monthly Loan Advances – payments of the same amount that are made to a borrower each month.

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

Home Equity Conversion – turning home equity into cash without having to leave your home or make regular loan repayments.

Home Equity Conversion Mortgage (HECM) – the only reverse mortgage program insured by the Federal Housing Administration, a federal government agency.

Home Value Limit – in the HECM program, the largest home value that can be used to determine a borrower’s loan advances.

Initial Interest Rate – in the HECM program, the interest rate that is 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.

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.

LIBOR – the London Interbank Offered Rate, used as an interest rate index in the HECM program.

Loan Advances – payments made to a borrower, or to another party on behalf of a borrower.

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.

Lump Sum – a single loan advance at closing.

Margin – in the HECM program, the amount added to an interest rate index to determine the initial, current, and expected interest rates.

Maturity – when a loan must be repaid; when it becomes “due and payable”.

Model Specifications – rules recommended by AARP for analyzing and comparing reverse mortgages.

Mortgage – a legal document making a home available to a lender to repay a debt.

Non-Recourse Mortgage – a home loan in which the borrower generally cannot owe more than the home’s value at the time the loan is repaid.

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

Property Tax Deferral (PTD) – reverse mortgages that pay annual property taxes; usually offered by state or local governments.

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

Reverse Mortgage – a home loan that gives 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 Recission – a borrower’s right to cancel a home loan within three business days of the closing.

Servicing – administering a loan after closing, such as maintaining loan records and sending statements.

Supplemental Security Income (SSI) – a federal monthly income program for low-income persons who are aged 65+, blind, or disabled.

Tenure Advances – fixed monthly loan advances for as long as a borrower lives in a home.

Term Advances – fixed monthly loan advances for a specific period of time.

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