w w w . M o r t g a g e L i n c .n e t

Glossary of terms

Following is a list of commonly used industry terms and their definitions.

Acceleration clause The portion of the contract that determines 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
Annuity An insurance product that pays out an income stream and is often used as part of a retirement strategy
Appraisal A professional estimate of the value of your home based on the features of the property and comparable sales in the area
Appreciation An increase in a home’s value
Available principal limit The equity amount available to the borrowers determined by the age; rates; and the lesser of the appraised value, sale price or the maximum lending limit
Change of circumstance When a qualified circumstance has happened which will allow the originator to update the fees (related to the Change in Circumstance) on the good faith estimate; An example of this would be when the appraised value has changed
Closing The process where the clients sign the loan documents to begin the final process of having their loan fund
Condemnation A court action saying a property is unfit for use; also, the government taking private property to use for the public by the right of eminent domain
Correspondent An organization that typically sells the mortgages it originates to other lenders
Credit line A credit account that permits a borrower to control the timing and amount of withdrawals
Deed of trust A document which pledges real property to secure a loan, used instead of a mortgage in certain states
Default A breach or nonperformance of the terms of a note or of the provisions of a mortgage loan; Defaults under a reverse mortgage could include failure to repay the loan after a repayment notice has been issued, failure to maintain the property, not live in the home as your primary residence and failure to pay property taxes and/or hazard insurance
Depreciation A decrease in the value of a home
Eminent Domain The right of a government to take private property for public use; for example, taking private land to build a highway.
Expected interest rate In the HECM program, the interest rate used to determine a borrower’s loan advances, which is based on the LIBOR (London Interbank Offered Rate) index plus a margin (see Margin).
Fannie Mae (FNMA) A private company that buys and sells mortgages; a government-sponsored entity that operates under the Federal general oversight of the federal government
Federal Housing Administration An agency within the U.S. Department of Housing and Urban Development (HUD) that insures HECM loans
Federally insured reverse mortgage Home equity conversion mortgage (HECM)
Gift funds Money donated to the borrowers from family members or close friends to pay for a shortfall of funds at the time of closing; these funds must be verified
Home equity The value of a home minus any debt against it
Home equity conversion Turning home equity into cash without having to leave your home or make monthly mortgage payments
Home Equity Conversion Mortgage (HECM) FHA-insured reverse mortgage that permits homeowners age 62+ to access a portion of the equity in their home without having to leave their home or make monthly mortgage payments
Initial interest rate The original interest rate of an adjustable rate loan, which equals the index in effect as of the date of closing plus the margin, and is charged upon the loan funding
Judgment It is a legal decision; when requiring debt repayment, a judgment may include a property lien that secures the creditor’s claim by providing a collateral source
Leftover equity The net proceeds from selling a home, minus the total amount of debt owed against it and the cost of selling it
Lender cure The amount the Lender has to pay to correct a tolerance violation that exceeds the percentage allowed by RESPA
Loan advances Payments made from a loan to a borrower, or to another party on behalf of a borrower
Loan balance The amount owed, including principal and interest
London Interbank Offered Rate (LIBOR index) An index that is used to determine interest rate changes on HECM adjustable rate loans
Lump sum A single loan payment (draw) to the borrower at closing.
Margin In the HECM program, the amount added to an interest rate index to determine the initial, current and expected interest rates
Maturity When a loan becomes due and payable
Maximum claim amount The lesser of a home’s appraised value, sale price or the maximum lending limit
Maximum lending limit The lending limit is the amount up to which a consumer can borrow through a HECM reverse mortgage; FHA national lending limits are set by HUD; The current maximum lending limit is $625,500
Modified tenure payments Equal monthly payments to the borrower that continue until the borrower no longer occupies the property as his principal residence, combined with a line of credit on which the borrower may draw at any time
Modified term payments Equal monthly payments for a fixed period of months selected by the borrower combined with a line of credit on which the borrower may draw at any time
Mortgage A lien on the property that pledges a promise to repay the loan
Mortgage insurance premium (MIP) The fee paid by a borrower to FHA or a private insurer for mortgage insurance; It guarantees that the borrower will continue to receive their expected loan proceeds. It also ensures that if the home is sold to repay the loan, you will never or more than the loan balance or the value of the property, whichever is less. The FHA requires a single, upfront MIP to be paid at closing. The MIP will also be assessed throughout the life of the loan and will be added to the outstanding balance and remitted to HUD on a monthly basis.
Net equity The amount available to the client after all liens and loan costs have been paid
Net principal limit The difference between the current principal limit and the outstanding loan balance
Non-recourse mortgage A home loan in which a lender may look only to the value of the home for repayment; no other assets may be attached if the loan balance grows beyond the mortgaged home value
Origination The overall administrative process of setting up a mortgage, from taking the loan application through the loan closing
Origination fee A fee charged to the borrower for processing a loan application. Lenders can charge 2% of the first $200,000 of the home’s value and then 1% of any amount over $200,000. Origination fees are capped at $6,000.
Payment plan Manner in which loan proceeds are paid out to the borrower; In the HECM program, six options are available: (1) tenure payments, (2) term payments, (3) credit line, (4) lump sum, (5) modified tenure payments, and (6) modified term payments. All options are not available on all products.
Principal limit The total amount of equity the borrower is able to access. The principal limit is based on the maximum claim amount, current interest rates, and the age of the youngest borrower.
Proprietary reverse mortgages A reverse mortgage product owned by a private company
Planned-unit development (PUD) A development that is planned, and constructed as one entity. Generally, there are common features in the homes or lots governed by covenants attached to the deed. Most planned developments have common land and facilities owned and managed by the owner’s or neighborhood association. Homeowners are usually required to participate in the association through a payment of annual dues.
Rate cap A set limit on the amount an adjustable interest rate may go up or down during a specified time period
Reverse mortgage A loan that allows seniors 62 and older to access a portion of their home’s equity in order to supplement their retirement income without having to make monthly mortgage payments
Right of rescission A borrower’s right to cancel a reverse mortgage loan within three business days of closing
Servicing Performing administrative functions on a loan after closing
Set-aside Funds for specified uses that are netted out when determining the borrower’s principal limit
Short to close Borrowers are required to bring in money to close due to not having enough equity in the home to qualify for the reverse mortgage
Supplemental security income (SSI) A federal program providing monthly cash benefits to low-income persons who are aged 65+, blind, or disabled
Tenure payments Equal monthly payments for as long as a borrower lives in a home
Term payments Equal monthly payments for a fixed period of months selected by the borrower
Total annual low cost (TALC) rate The projected annual average cost of a reverse mortgage including all itemized costs
U.S. Department of Housing and Urban Development (HUD) A federal agency that oversees the Federal Housing Administration (FHA) and numerous housing and community development programs

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