This is the section of the National Housing Act that sets a dollar amount limit on the reverse mortgages that are insured by FHA. These limits may vary by county.
A
AARP
An association that promotes the welfare of senior citizens.
Acceleration Clause
The portion of a mortgage contract that describes the circumstances under which a loan can become immediately due and payable.
Accrual
As long as a loan has an outstanding balance, the lender is continually earning interest on it. Because the amount of interest earned is constantly growing, it is said to be "accruing."
Adjustable Rate (see also "Variable Rate")
An interest rate that is based on a specific index and that changes each time the index changes. The index used to determine reverse mortgage interest rates is called the Constant Maturity Treasury Index (CMT) and fluctuates based on the performance of US Treasury securities.
Advance
When funds are disbursed from a loan, it is called an advance (e.g., when a consumer uses money from their reverse mortgage line of credit).
Amortization
The repayment of a debt by means of periodic payments.
Annuity
Payments made in regular installments to the beneficiary of a contract in return for premiums that were paid previously.
Appraisal
A process that uses sales data from other homes in the area to determine the market value of a particular property. A licensed appraiser inspects the home and prepares a report that documents everything the they did to ascertain the value, as well as their conclusion regarding the value.
Appreciation
The increase of property value that occurs as a result of changes in the market.
Area Agency on Aging (AAA)
Regional, nonprofit organizations that provide resources and information to senior citizens.
B
Balloon Payment
A single payment that repays a debt in full, as opposed to several, smaller payments used to repay a debt over of time.
Broker
An individual or company that matches consumers with providers in return for a fee.
C
Cap
Limits how much an adjustable rate can increase during each adjustment period and/or over the life of the loan.
Certified Financial Planner (CFP)
A professional designation granted by the Certified Financial Planner Board of Standards in return for meeting certain education and experience requirements, as well as passing an examination.
Closing
The meeting during which all of the loan documents are signed by the borrower(s) in the presence of a notary or an attorney. This is when the mortgage becomes a contractual obligation.
Condemnation
When a court determines that a property is unfit for occupancy.
Cookie
A small file particle that is stored on the user's computer by their web browser and which allows web sites to keep track of online sessions.
Credit Limit
The maximum amount of credit that can be extended on a credit account.
Credit Line
Money that you can borrow at times and in amounts of your choosing and that can be re-used as it is repaid.
Current Interest Rate
The rate at which interest is currently accruing on the loan.
D
Deed of Trust (DOT)
A document outlining the agreement between the lender and the borrower to convey an interest in the borrower's property to a neutral 3rd party, called a trustee, in order to secure the repayment of the debt. It is only an interest in the property and not the property itself that is granted to the 3rd party. Only if the secured debt becomes delinquent can the property itself be conveyed to the trustee.
Default
Failure to make a scheduled payment.
Deferred Payment Loan (DPL)
A type of reverse mortgage offered by some states and/or cities.
Department of Housing and Urban Development (HUD)
A government agency responsible for ensuring smooth policy for housing and city development.
Depreciation
The decrease of property value that occurs as a result of changes in the market.
Disbursement
The advancement of funds.
Draw
Funds that are disbursed from a line of credit.
E
Equity
The difference between the value of the property and the balance owed against it.
Escrow Account
An account in which funds are held that have been ear-marked for a specific purpose.
Expected Interest Rate
The interest rate that is used in order to determine the maximum loan amount of a reverse mortgage.
F
Fannie Mae
A private, government sponsored company that buys and sells mortgages.
Federal Housing Administration (FHA)
A division of the US Department of Housing and Urban Development (HUD).
Federal Trade Comission (FTC)
A federal agency dedicated to protecting consumers.
Fixed Rate
An interest rate that does not change.
Foreclosure
When a lender takes possession of property in order to satisfy a debt that is in default.
Freddie Mac
A private, government sponsored company that buys and sells mortgages.
G
Government Sponsored Enterprise (GSE)
A privately held corporation created by the United States Congress.
H
Hazard Insurance
Insurance that covers damage to your home that is caused by specific hazards, such as fire, flood, wind or hail.
Home Equity Conversion
When a homeowner trades the value of their equity for cash.
Home Equity Conversion Mortgage (HECM)
A type of reverse mortgage that insured by the federal government and allows homeowners to convert the equity in their home into income.
I
Index
The measurement of financial markets, expressed as a numeric value, and used to compute the interest rate on adjustable rate mortgages.
Interest Rate
The rate at which the lender earns interest on the balance of an outstanding loan.
J
Junk Fees
Fees charged by a lender that do not correspond with a specific service. For example: originating a loan is a service and, therefore, a legitimate fee. Processing paperwork during the course of originating the loan is an inherent part of origination. Therefore, a processing fee would be considered a junk fee.
L
Lien
The legal claim of a lender against a debtor's property in order to ensure repayment of the debt.
Loan-to-Value Ratio (LTV)
A figure that expresses, as a percentage, the difference between the amount of the loan and the appraised value of the mortgaged property.
M
Margin
The amount added to the index on an adjustable rate mortgage in order to determine the total interest rate. The margin is never variable.
Market Value
The amount for which a home would sell under current market conditions.
Maturity
The date when a loan is scheduled to be repaid in full.
Modification
Changes made after a loan has closed to how funds are made available to the borrower.
Monthly Servicing Fee
A fee that is paid from the loan proceeds of a reverse mortgage - NOT out of pocket - to cover the cost of servicing the mortgage while it is active.
Mortgage
When a lender is granted interest in real estate as a guarantee that a debt will be repaid.
Mortgage Guarantee
A contract in which the guarantor reimburses the lender in the even that the lender is otherwise unable to recoup all funds owed to them on the guaranteed mortgage.
Mortgage Insurance
Insurance that reimburses the lender in the event that the lender is otherwise unable to recoup all funds owed to them on the insured mortgage. In the case of federally insured reverse mortgages, the insurance also guarantees homeowners access to their funds in the event that their lender is unable to pay.
N
Net Proceeds
The funds available from a loan or sale of a home after all related expenses have been paid.
Non-recourse Mortgage
A mortgage contract that does not hold the borrower personally responsible for any balance owed that is in excess of the value of the mortgaged property.
Note
A document that describes the terms under which a debt is to be repaid.
O
Origination
The process of creating a new loan.
P
Planned Urban Development (PUD)
A type of community zoning classification that is planned and developed within a city, municipality and/or state and which contains both residential and non-residential buildings.
Pre-Loan Counseling
A financial counseling session with a HUD-approved counselor, the purpose of which is to provide potential reverse mortgage applicants with complete and unbiased information about the reverse mortgage product and any other financial options that may be available.
Prepayment
A payment that is made to reduce the principal balance before it is due.
Prepayment Penalty
A fee charged by some lenders on some mortgage products when the principal balance is repaid prior to becoming due and payable.
Principal
The remaining balance of the amount that has been borrowed. With reverse mortgages, accrued interest becomes part of the principal balance rather than being paid monthly.
Principal Limit
The maximum principal amount of a loan.
Proceeds
Funds received from a loan or sale of a home.
R
Refinance
To repay a debt with a new loan.
Repair Rider
A contract that describes any home repairs that are required as a condition for a mortgage and sets the time frame in which they are to be completed.
Rescission
The cancellation of a loan agreement. This is only allowed during the three days following the date the contract was signed.
Reverse Mortgage
A type of mortgage that allows homeowners over the age of 62 years to convert the equity in their home into income that does not have to be repaid for as long as they live in the home.
S
Security Instrument
The collateral that is offered to a lender in order to guarantee repayment of a debt.
Servicing
Any activity involved in maintaining an active mortgage. This includes bookkeeping, sending disbursements, issuing statements, etc.
Settlement
Also referred to as a closing, this is when the terms and conditions of the contract are settled and the contract becomes binding.
Settlement Statement
The document signed at closing which outlines all of the monetary transactions related to the financing transaction.
Shared Equity
A contract where the lender is granted a percentage of the value of any appreciation that takes place between when the loan closes and when the loan matures.
T
Term
The length of time that a loan is active. Most reverse mortgage have an unspecified term.
Total Annual Loan Cost (TALC)
The estimated cost of the loan on an annual basis expressed as a percentage of the projected loan balance. Note: this cost is not an out of pocket expense.
Trust
A fiduciary relationship in which one person or entity holds the title to property for the benefit of another party.
U
Underwriting
The process of evaluating a loan application and all related documentation in order to either approve or deny financing.
US Department of Agriculture (USDA)
The USDA is a government agency that administers programs to assist farmers and address farming issues.
US Department of Housing and Urban Development (HUD)
A federal agency that is dedicated to promoting homeownership and community development.
US Department of Veterans Affairs (VA)
A Federal Agency dedicated to serving the needs of American veterans.
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