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Reverse Mortgage 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
Credit line - 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)
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)
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 Mortgage (HECM) - turning home equity into cash without having to leave your home or make regular loan repayments. 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
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
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 Rescission - 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
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
T-Bill Rate - the rate for U.S. Treasury Securities; used to determine the initial, expected, and current interest rates for the HECM program