Reverse Mortgage
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Glossary
Area Agency on Aging (AAA) - a local or regional nonprofit organization that provides information on services and programs for older adults
adjustable rate - an interest rate that changes, based on changes in a published market-rate index
amortization – the process by which a loan balance decreases over time as principal payments are made
annuity - a monthly cash payment you get from an insurance company for the rest of your life
annuitant – the person (usually the owner of an annuity) who receives the annuity payouts
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
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
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
depreciation - a decrease in the value of a home
estate taxes – federal death taxes on the assets and other holdings that make up the taxable base of the deceased
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
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; 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
irrevocable trust – a trust that cannot be revoked, cancelled, rescinded or made void by anyone
irrevocable life insurance trust – a trust set up to remove life insurance and its death benefits from the taxable base of the deceased in order to avoid estate taxes
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
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"
maximum claim amount – the lesser of the homes value or the FHA county lending limit in which the home is located
mortgage - a legal document making a home available to a lender to repay a debt
negative amortization – the process by which a loan balance grows over time due to the accruing interest and fees that are not being regularly paid by the borrower
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
power of attorney – a legal document that gives the designated holder the right to act on the behalf of or do something for the named person
principal balance - the amount owed; the sum of all loan advances, accrued interest, MIP and all fees, capped in a reverse mortgage by the value of the home when the loan is repaid.
principal limit – the initial loan amount of a reverse mortgage, which grows over time at the same rate at which the loan balances accrue interest and MIP; calculated by using the age of the youngest borrower, current interest rates and the maximum claim amount
probate – the legal process to prove the validity of a will, also the word used to describe the entire legal process that occurs when a person dies with or without a will
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
revocable trust – a trust where a designated person is given the power to change or revoke the document
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
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
testamentary trust – a trust that is contained inside of a will
Total Annual Loan Cost (TALC) rate - the projected annual average cost of a reverse mortgage including all itemized costs
T-Bill rate - the interest rate for the One-year U.S. Treasury Bill; used to determine the initial and current interest rates for the HECM monthly and annual adjustable programs
Ten-Year Treasury rate – the interest rate on the Ten-year Treasury Note; used to determine the expected interest rate that is used to calculate the Principal amount
trust – a legal document that transfers title of a property to an individual or entity for the benefit of another person or entity
trustee – the person or entity named to carry out the instructions contained in the trust document. The trustee also holds legal title to the trust property
uninsured reverse mortgage - a reverse mortgage that becomes due and payable on a specific date
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