Get familiar with some of the most common mortgage definitions.
Annual Percentage Rate – APR: The cost of a mortgage stated as a yearly rate; includes such items as interest, mortgage insurance, and loan origination fee (points).
Annuity: A monthly cash payment you get from an insurance company for the rest of your life.
Closing: A meeting where documents are signed to “close the deal” on a mortgage; the time a mortgage begins.
Credit Line or Line of Credit – LOC: A credit account that lets a borrower decide when to take money out and also how much to take out.
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.
Fee Worksheet: The fee worksheet is a report from your lender that outlines the costs you will incur to get your mortgage. It is based on the lender’s typical loan origination costs for the area where your home is located.
FHA: Federal Housing Administration (HUD Office of Housing).
Home Equity: The value of a home, subtracting any money owed on it.
Home Equity Conversion Mortgage – HECM: The only reverse mortgage program insured by the Federal Housing Administration, a federal government agency.
HUD: U.S. Department of Housing and Urban Development
Initial Interest Rate: In the HECM program, the interest rate that is first charged on the loan beginning at closing, which equals the one year rate for U.S. Treasury Securities, plus a margin.
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.
MIP: Mortgage Insurance Premium
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 overall administrative process of setting up a mortgage, including the preparation of documents.
Proprietary Reverse Mortgage: A reverse mortgage product owned by a private company.
Reverse Mortgage: A non-recourse home loan with no income or credit requirements that gives cash advances to a homeowner aged 62 or older against the home equity providing cash advances to the senior homeowner. No repayment is required until a future time, and repayment is capped by the value of the home when the loan is repaid.
Reverse Mortgage Counseling: In order to get a reverse mortgage or a Home Equity Conversion Mortgage (HECM), you must receive counseling that explains how this financing option works. During counseling, you will receive an estimate of your loan advances and an explanation of your responsibilities as a borrower. Other source of unbiased information education may also be provided.
Right of Rescission: A borrower’s right to cancel a home loan within three business days of the closing.
Tenure Advances: Fixed monthly loan advances for as long as the borrower lives in the home.
Term Advances: Fixed monthly loan advances for a specific period of time.
Title Search: A check of the title records to ensure that the seller is the legal owner of the property and that there are no liens or other claims attached to the property. Encumbrances include any liens – legal claims against a property filed by creditors as a means to collect unpaid bills. Liens can also be filed by the Internal Revenue Service for nonpayment of taxes. Any such claims must be paid by the seller, this often occurs either before or at the closing.
Total Annual Loan Cost Rate – TALC: The projected annual average cost of a reverse mortgage including all itemized costs.