Reverse Mortgage Terms

203-b limit – from Section 203-b of the National Housing Act, this provides instruction for determining the dollar limit used in each county to determine the amount of the home’s value that can be used to get money from a federally insured HECM reverse mortgage

AARP model specifications – a set of rules provided by AARP (American Association of Retired Persons) to help consumers analyze and compare terms on reverse mortgages

Acceleration Clause – a clause common in all mortgages that states the conditions on which a lender may demand that the loan be due and payable

Annuity – a cash payment that you receive on a monthly basis from an insurance company or other entity

Credit Line – an account that can be used at the borrower’s discretion; there is no fixed amount of credit that they have to take, although there is a maximum amount of credit established for the borrower

Current interest rate – the rate of annualized interest that you pay on the amount borrowed from the lender as established in the note; in the HECM program, it is equal to the one-year rate for US Treasury Securities, plus a margin

Deferred payment loans (DPL’s) – these are usually offered by the state and local government and are designed to allow borrowers to repair or improve their homes through the use of a lump cash sum

Home Equity Conversion Mortgage (HECM) – this is the only reverse mortgage program that the federal government will insure, through the Federal Housing Administration

Leftover equity – the amount that either the homeowner or their heirs will receive from the sale of the home; this amount is equal to the sales price less the amount owed on the home and the cost to sell the home

Margin – this is the amount added to the one-year US Treasury rate to determine the initial interest rate

Maturity – the date at which a loan must be fully repaid; effectively, the end of the loan term

Property tax deferral (PTD) – a reverse mortgage that pays the borrowers annual property taxes, usually offered by state or local governments

Right of rescission – this is the right of the borrower to cancel a home loan within three business days of the loan closing, or signing date

Tenure advances – a schedule of fixed monthly payment that the borrower receives as long as they live in the home

Total Annual Loan Cost rate – also known as TALC, this is the total annualized cost of the reverse mortgage to the borrower, and includes all itemized expenses to obtain the loan