203-b Limit

From Section 203-b of the National Housing Act, this code refers to the dollar limit that is used to determine how much you can get from a HECM loan in your county.  This is based on the value of your home versus the average home price in your area in relation to the rest of the country.  The lowest limits are for mostly rural counties.  These limits change every year or so to reflect current housing prices.

Acceleration Clause

Usually there are only two ways to end your reverse mortgage-by moving out or dying.  An acceleration clause says that a loan may be declared due and payable if you fail to maintain your home safely, pay your property taxes, or are remiss on your homeowner's insurance.  It accelerates your loan pay date.  All major reverse mortgages include this clause to protect the lender and you.

Adjustable Rate Mortgage (ARM)

An adjustable rate is just as it sounds; the interest rate on your loan changes (adjusts) unlike a 30-year fixed mortgage loan that you may have had in the past.  ARMs can adjust every month, every year, or every six months, depending on your loan.  ARMs are based on federal interest rates, plus an additional amount added by the lender.

Appraisal

The estimate of the value of your home in a fair market.  The appraised value, is in theory, what you could sell your home for if you were to put it up for sale today.  The estimate is done by an appraiser, who comes to your home, inspects it, and compares it with three comparable properties.

Appreciation

The dollar amount increase in your home's value.  Appreciation can work to your advantage in a reverse mortgage-if your home appreciates beyond the total loan amount due, you or your heirs will receive the difference if/when you decide to sell your home.

Area Agency on Aging

A great resource for seniors and their families, this non-profit organization operates locally and nationally.  Call 1 800.677.1116.

Attorney in fact

Also called an agent, this is the person who holds durable power of attorney over another.  In a reverse mortgage, this is usually an adult child who helps the parent secure a loan.

Cap

The limit that your ARM can go up or down during your loan.  It varies for each loan.  For instance, on a Home Keeper, your interest rate will never be more than 12 percent above your original rate.

Closing

The end of the application process, in which you sign the final papers, the originator records the loan with your county, and the loan officially begins.

Closing Costs

The total of all the fees and other charges, traditionally paid in full at closing.  Since this can be quite expensive, this dollar amount can also be financed into your loan balance.

Co-borrower

Any person who signs the same with you.  The loan is due when the last remaining co-borrower moves out or dies or when the house is no longer maintained.

Comparables

Term used by appraisers to describe similar houses in your neighborhood that they use to help determine the value of your home.  Also called comps.

Counselor

A requirement for any reverse mortgage, counselors lay out your options for you, give you a basis of education, and assess your candidacy for a reverse mortgage.

Deed of trust

The deed of trust is the one that is recorded with the county to secure your loan.  This is the only one that affects a reverse mortgage and the only one you need to think about.

Deferred Payment Loans (DPLs)

A DPL is a type of reverse mortgage, usually state sponsored, that gives you a loan specifically to repair or improve your home.  You are limited to this use of the money, and the loan is generally much smaller than one of the three reverse mortgage products.

Government division that oversees the nation's housing concerns.  Offers the HECM loan.

Depreciation

This is a loss of your home's value, which can actually work to your advantage in a reverse mortgage.  If you borrow $100,000 and by the time you sell your home, your home is only worth $90,000, your are only liable to repay that $90,000.  The left over $10,000 is absorbed by the lender.

Durable Power of Attorney

Written permission for someone else to act upon your behalf, usually an adult child.  Someone with power of attorney can legally take out a reverse mortgage for the senior who has been entrusted to them.

Equity

The value of your home if you were to sell it, minus any debts you owe on it.  For example, if you own a home worth $250,000 but still owe $75,000 on it, your home equity would be $175,000.  Your reverse mortgage loan value is based partially on your equity.

Fannie Mae

A government-sponsored company that operates privately to buy and sell mortgages.  They are the primary source of reverse mortgage funds and offer their own loan, the Home Keeper or Home Keeper for Purchase.

Federal Housing Administration (FHA)

You can think of the FHA as the watchdogs of reverse mortgages.  They are a branch of the Department of Housing and Urban Development (HUD), which offers the Home Equity Conversion Mortgage (HECM).

Financial Freedom

One of the largest private lenders, Financial Freedom offers the Jumbo Cash Account for higher-value homes.

Financing

Rolling the costs of getting your loan (origination fees, closing costs, etc.) into the total loan balance in order to pay these extra costs along with your loan repayment.  Many people opt to finance their fees, which can be several thousand dollars.

Fixed Rate Mortgage

Most likely what you have currently, a fixed-rate loan is usually a 30-year term with an interest rate that stays the same for the entire life of the loan.  These long-term fixed rate loans are usually not an option with reverse mortgages.

Grant Deed

A document that gives ownership to a property.  This transfers property from one person or party to another.

Home Equity Conversion Mortgage (HECM)

By far the most popular reverse mortgage, the HECM is offered by HUD and is insured through the Federal Housing Administration (FHA).

Home Keeper

Fannie Mae's reverse mortgage product, which offers higher loan limits than HECM and no mortgage insurance payment, but often lower loan principals.

Home Keeper for Purchase

A spin-off of the Home Keeper, this loan is designed to use the reverse mortgage to help buy a new home.

Index

The base interest rate, which varies depending on your loan type.  This number, plus a margin, equals your reverse mortgage interest rate.

Jumbo Cash Account

Financial Freedom's reverse mortgage, the Jumbo Cash Account is intended for seniors with home values above the current Fannie Mae limits, but is best suited for those owning homes worth $700,000 or more.  The loan is a credit line only-monthly payments are not an option.

Leftover equity

In a reverse mortgage, leftover equity refers to the money left over from the sale of the home after your lender has been repaid.

Lender

The company that actually funds the loan.  Examples of lenders are Fannie Mae and Financial Freedom although many others exist.

Line of Credit

Also called a credit line, this loan payment option allows you to choose how much money you want to withdraw from your loan "account" and how often.  There is a minimum draw amount of $500, which is meant to prevent someone from requesting $37.95 to pay a utility bill.

Living Trust

Allows someone (usually an adult child) to handle property matters for you.

Loan Balance

This dollar amount equals the amount you owe on your loan, including interest and any fees that were financed with your loan.

London Inter Bank Offered Rate (LIBOR) Index

The rate at which banks lend money to each other in London, England, used by most lenders to calculate your reverse mortgage interest rate.

Lump Sum

One of the three main payment options-you receive a check for the total loan amount at closing and manage it as you wish, but will receive no additional money from your reverse mortgage.

Margin

The extra percentage points an originator or lender can add to the base interest rate (set by the government).  Margins are capped differently for each loan, but are generally between 1.5 and 5 percent.

Mortgage Insurance

Associated with HECM loans, protects you and the lender in case your loan balance grows higher than your home value (in which case the lender would lose money on your loan).  The payment for this insurance is called a mortgage insurance premium (MIP) and is based on a percentage of your interest rate.

Non-Recourse Loan

This describes all major reverse mortgages and states that you can never owe more than your home is worth when your loan is repaid.

One-Month Secondary Market CD Index

The interest rate Fannie Mae bases your rate on, as determined by the Governors of the Federal Reserve System.

Originator

The person who actually makes your loan a reality.  Originators provide documents, help you chose the right loan, send all your paperwork through to the lender, and answer any and all questions you will have along the way.

Planned Unit Development (PUD)

One of the housing types eligible for most reverse mortgages, a PUD consists of a subdivision or other project that shares common property (like a community pool or clubhouse).

Principal

The amount of your loan before interest, fees, or any other additions.

Property Tax Deferral (PTD)

Another type of state reverse mortgage, PTDs help you pay your property taxes.  This loan is a good choice if your sole reason for getting a reverse mortgage is to take care of these payments.  They are very inexpensive to get, and occasionally do not need to repaid at all.

Quit Claim Deed

This removes some one's name from title or ownership of a property.  For instance, if a child's name had been added on title to their parents' home, the child needs to sign a quit claim deed to remove his or her name so the parents could obtain the reverse mortgage.

Repair Addendum

If the appraiser recommends repairs, this document spells out the specific repairs needed, the conditions of the work done, and the time-frame.

Reverse Mortgage

Any home loan that provides you with an equity advance (either monthly, as a lump sum, or in a line of credit) that is not payable until you move out or die.

Right of Rescission

The three-day time period after your loan closes in which you can still change your mind and revoke the loan.

Servicing

The maintenance on your loan after if closes done by the servicer), which usually includes sending checks, updating information, changing your preferred payment options, providing you with regular statements to show how your reverse mortgage loan amount is growing, and day-to-day paperwork.

Supplemental Security Income (SSI)

An income program for those over 65, which operates in addition to social security.  SSI benefits may be affected by your reverse mortgage income.

Tenure Payments

Monthly equal payments throughout the life of the loan, which continue until you move out or die.

Term Payments

Monthly equal payments that are paid for a specific amount of time.

Title

A legal document that proves ownership of a property.  When you apply for a reverse mortgage, your originator orders a title search to make sure no one else holds any claims to youre property.

Total Annual Loan Cost (TALC) Rate

The estimated cost of the loan to you, per year.  This is a hypothetical projection, since you won't pay anything until the entire loan balance is due.

T-Rate Index

The U.S. treasury Securities rate, which is used as the index for the HECM loan.

Uninsured Reverse Mortgage

Unlike most reverse mortgage products, this is a reverse mortgage that becomes due and payable on a specific date.  These are sometimes a dangerous choice, so talk to your counselor and originator before pursuing an uninsured loan.