AARP Glossary Of Reverse Mortgage Terms

AARP (American Association of Retired Persons) does not endorse any particular Reverse Mortgage lender or product. However, they have been national leaders in educating seniors and their families about reverse mortgages as well as helping legislate changes that have made reverse mortgage loans safer and more useful to senior homeowners. AARP led the effort to develope the Federal insurance program for reverse mortgages. Without this insurance, there would be few reverse mortgage lenders participating in the reverse mortgage market and the loans would not be as safe for homeowners as they are today.

AARP has been the leading provider of consumer information and education on Reverse Mortgages. It has published fact sheets, Free Consumer Guides and videotapes. AARP has also published the following glossary of Reverse Mortgage Terms to help guide consumers through the common terms that might be used while they are applying for a reverse mortgage.

Reverse Mortgage Terms:

203-b Limit – the dollar limit in each county for how much of a home’s value can be used to determine the amount of money you can get from a federally insured HECM reverse mortgage; the name comes from Section 203-b of the National Housing Act

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

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

Annuity – a monthly cash payment you get from an insurance company for the rest of your life.

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

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; it equals the one-year rate for U.S. Treasury Securities, plus a margin (see below)

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 the 10-year rate for U.S. Treasury Securities, 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

Initial Interest Rate – in the HECM program, the interest rate that is first charged on the loan beginning at closing; it equals the one-year rate for U.S. Treasury Securities, 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.

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 the one-year Treasury rate to determine the initial and current interest rates, and to the 10-year Treasury rate to determine the expected interest rate

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

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 can never 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 Annuity Mortgage – a reverse mortgage in which a lump sum is used to purchase an annuity that gives the borrower a monthly income for life.

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

Shared Equity – an itemized loan cost based on a percent of a home’s value at loan maturity; for example, a 5% shared equity fee on a home worth $200,000 at maturity would be $10,000

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 reve
rse mortgage including all itemized costs

T-Rate – the rate for U.S. Treasury Securities; used to determine the initial, expected, and current interest rates for the HECM program

Uninsured Reverse Mortgage – a reverse mortgage that becomes due and payable on a specific date

Source: AARP

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