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203-b limit
The maximum amount of a home’s
value that can be used to determine
the dollar amount a borrower
receives from a federally insured
HECM reverse mortgage; varies by
county; the name comes from section
203 (b) of the National Housing Act
Acceleration Clause
A stipulation in a contract that
allows for the lender to declare a
loan due or demand more collateral;
only allowable in certain
circumstances such as bankruptcy,
non-payment of taxes, or failure to
make payments
In a reverse mortgage scenario,
the house must be insured, taxes
paid, and kept in good repair.
Failure to do so could result in the
the loan coming due – amounting to
an acceleration.
Adjustable Rate
Any interest rate that changes
periodically based on published
market rates.
The Reverse Mortgage Rates adjust
monthly or annually, depending on
the terms of the agreement. You must
ask your reverse mortgage lender
about this.
Annuity
A contract (usually designed by
an insurance company) that provides
cash payments in a specified
interval. In the right situation,
purchasing a "post retirement"
annuity can be an excellent move.
People sometimes refer to a
reverse mortgage as a Reverse
Annuity Mortgage. Receiving monthly
income with reverse mortgage
proceeds is, in many ways, like
purchasing an annuity. Except your
house becomes the instrument used to
purchase the annuity.
Appraisal
The estimated amount of a home’s
value based on the market rate; also
called market value. The reverse
mortgage lender will find a
qualified appraiser.
Generally, the higher the
appraisal, the more money you will
be able to qualify for with a
reverse mortgage. A reverse mortgage
is based on your age, your home’s
value (appraisal), and what county
you live in.
Appreciation
The increase in value in a home
or any other asset. The more your
home appreciates in value while you
have a reverse mortgage outstanding,
the more equity could possibly be
left over to leave to heirs.
Area Agency on Aging
Local or regional nonprofit
organization that provides
information for older Americans on
services and programs; usually part
of a national network created under
the 1971 Older Americans Act (OAA)
Cash-Out Refinance
A refinance transaction where the
amount of money from the new loan is
greater than the total of the money
needed to repay the existing first
mortgage, closing costs, points, and
the amount required to satisfy any
outstanding subordinate mortgage
liens.
A refinance transaction where
borrower receives additional cash
that can be used for any purpose.
Many folks ask: HELOC vs. Reverse
Mortgage
Cash out refi vs. Reverse Mortgage
is similar question
Read the Reverse Mortgage Page to
learn differences
Closing
The finalizing of a mortgage;
this is the time when documents are
signed and the mortgage begins. The
reverse mortgage closing process is
much the same as a traditional or
"forward" mortgage.
Condemnation
The legal action declaring a
property is unfit for use or is
being seized by the government
through eminent domain.
Property subject to a reverse
mortgage must be kept insured, in
good repair, and the taxes paid.
Assuming these things are done,
condemnation with a reverse mortgage
is not an issue.
Credit Line
A credit account allowing the
borrower to receive money from the
lender at the borrower’s intervals
and amounts; also called a line of
credit
It is a popular feature of
reverse mortgages. Many people
decide to use a combination of cash
up-front and a credit line.
Current Interest Rate
The present rate being charged on
a loan; in the HECM program it
equals the one year U.S. Treasury
rate plus the lender’s margin. The
lender’s margin varies depending on
the type of reverse mortgage product
selected.
Deferred Payment Loans
A loan that gives the borrower an
amount of money which has to be paid
back at a certain point in the
future; reverse mortgages and
student loans both fall into this
category. Payments on a reverse
mortgage are deferred until death or
a permanent move.
Depreciation
The decrease in value in a home
or any other asset.
Elder Law Attorney
Definition
A lawyer who practices in the
area of law involving seniors and
aging. Not only should this attorney
be able to handle medicare, medicaid,
and asset titling issues, but wills,
trusts, estates, and taxes as well.
The obtaining of a reverse
mortgage is an excellent time to
consult an elder law attorney for
planning issues. To read more on
this, click here.
Expected Interest Rate
Used to determine loan advance
amounts; in the HECM program it is
calculated by using the 10-year U.S.
Treasury rate plus the lender’s
margin.
Fannie Mae
A congressionally chartered
private company that buys mortgages
and sells them to investors.
Currently, Fannie Mae purchases all
HECM reverse mortgages.
Federally Insured
A guarantee of the government in
the form of insurance; pertaining to
reverse mortgages, the loan is
backed by the federal government so
that the borrow always gets what is
promised by the lender; see Home
Equity Conversion Mortgage (HECM)
Fixed Monthly Loan
Advances
A certain amount of money that is
made to a borrower from a lender
each month.
Home Equity
The appraised value of a home
minus any outstanding loans on the
home; related to leftover equity.
Home Equity Conversion
Mortgage (HECM)
A federally insured reverse
mortgage. Approximately 90% of all
reverse mortgages are of the HECM
variety. Explore all options when
interested in a HECM reverse
mortgage.
Home Equity Loan
An agreement in which a home is
used as collateral for a loan. Click
here to analyze Home Equity Line of
Credit vs Reverse Mortgage using the
Reverse Mortgage Page.
Housing and Urban
Development (HUD)
U.S. Federal Department that
encourages housing; FHA is a
division of HUD. Reverse mortgages
are sometimes called HUD Reverse
Mortgage, which is not an official
term – it means only reverse
mortgages.
Initial Interest Rate
The rate that is charged at
closing; under HECM it equals the
one year U.S. Treasury rate plus a
margin. The margin varies by lender
and determines profits the lender
makes with reverse mortgages.
Leftover Equity
The sale price of a home minus
outstanding loans and the cost of
selling the home; the amount a
homeowner or heir would receive when
the house is sold.
Loan Balance
The amount a borrower owes to a
lender including the principle loan
and interest; the balance is capped
in a reverse mortgage according to
the appraised value of the home when
the loan is repaid.
Long-Term Care Insurance
Coverage that, under specified
conditions, provides skilled
nursing, intermediate care, or
custodial care for a patient
(generally over age 65) in a nursing
facility or his or her residence
following an injury. Click Reverse
Mortgages and Long-Term Care
Insurance to see our article on the
subject.
Lump Sum
A single advance for the amount
due; in relation to reverse
mortgages it’s a loan advance paid
at closing.
Margin
The amount that is added to the
U.S. Treasury rate in order to
determine the initial, current, and
expected interest rates in
accordance to HECM standards; set by
the lender
Maturity
The point in time when a debt or
loan must be repaid.
Mortgage
A loan that designates a home as
collateral to repay the debt; has
specific interest rates with the
borrower having appointed times to
make payments.
Origination
The beginning of a mortgage.
Origination Fee:
A fee that is charged by the
lender in order to place and process
the borrower’s loan application.
Reverse Mortgage Originator:
The individual who assists in the
process of obtaining a reverse
mortgage. You can find a reverse
mortgage broker by using the Reverse
Mortgage Page.
Property Tax Deferral
(PTD)
A program for seniors the allows
property taxes to be deferred;
usually paid by a reverse mortgage
or through state or local government
programs
Proprietary Reverse
Mortgage
A reverse mortgage or reverse
mortgage product owned by a private
company. Just because a reverse
mortgage is not of the HECM variety,
or federally insured, does not mean
it is not a credible reverse
mortgage. In fact, in many
situations, the proprietary product
may be the best reverse mortgage
option.
Reverse Annuity Mortgage
An arrangement where a homeowner
uses a reverse mortgage to purchase
a tax-free annuity. Use the Reverse
Mortgage Page’s lender to learn more
about a reverse annuity mortgage.
Reverse Mortgage
A loan that provides a cash
advance from the lender to the
borrower against the equity in a
home; reverse mortgages do not need
to be repaid as long as the borrower
lives in the home nor can the
mortgage exceed the value of the
home.
Reverse Mortgage
Calculator
A reverse mortgage calculator
will show you how much cash you can
get if you take out a reverse
mortgage. The amount varies based on
age, location (each county has a
different 203-B limit), and house
value/current payoff.
If the figures you see are in red
– you have a shortfall. You will
need to have that much cash at
closing just to pay off your
existing mortgage. Cash available
after paying off liens is the
important number, as you will have
to pay off your current mortgage or
mortgages from the proceeds of the
reverse mortgage.
In addition, if one spouse is
under 62, you will note the
calculator produces no results. This
is because individuals under the age
of 62 cannot get a reverse mortgage.
Even if it is only one borrower.
The amount you can get is based
on the younger spouse’s age.
Home Value Estimator: Click Here
Reverse Mortgage
Counseling
Required by HUD in order to
obtain a HECM reverse mortgage;
counselors help borrowers understand
their options and provide knowledge
and information. An incredibly
helpful service. Your reverse
mortgage originator can help you
find unbiased counseling.
Reverse Mortgage
Originator
The person or company who answers
questions, help the borrower choose
the right type of loan, provides
documents, and sends documents
through to the lender.
Right of Rescission
The right of a borrower to cancel
a loan within three business days of
closing without penalty.
Servicing
The administration of a mortgage
after closing; includes sending
statements, maintaining records, and
calculating interest rates.
Servicing fees vary by reverse
mortgage lender – and it is a
question you should ask.
Shared Equity
An arrangement where a borrower
and a lender agree on a specific
loan cost so that when the loan
reaches maturity, the lender is
entitled to a share in the home’s
equity.
Supplemental Security
Income (SSI)
A federal program created under
the Social Security Act that
provides monthly income for
low-income individuals who are
seniors. Also available to the blind
or disabled.
Tenure Advances
Fixed monthly payments that are
given to a borrower as long as they
live in the home.
Total Annual Loan Cost
(TALC) Rate
The estimated yearly cost of the
loan. Ask your reverse mortgage
originator about the TALC rate very
early in your discussions.
T-rate
U.S. Treasury rate that under the
HECM loan is used to determine,
initial, expected, and current
interest rates.
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