Below is a list of important HECM terms and their definitions. If you need clarification with any term be sure to contact an approved HUD agency that provides HECM counseling.
Acceleration Clause – The part of a contract that says 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.
Appraisal – An estimate of the value of a home.
Appreciation – The rate of increased value of a home.
Area Agency on Aging(AAA) – Local or regional nonprofit organization that provides information on services and programs offered to seniors.
Cap – A limit on the amount an adjustable interest may to up or down during a specified period of time outlined in the loan agreement.
Closing – The official closing of the loan and transaction process in a home purchase.
CMT Rate – The Constant Maturity Treasury rate, used in calculating interest rates. The lender's margin in the other portion of the interest rate.
Creditline – A line of credit that lets the borrower decide when and how much to draw from. Interest only accrues on the draws as they are taken.
Current Interest Rate – The interest rate that is being charged on a HECM at any given time.
Deferred Payment Loans – A form of reverse mortgage provided by local or state governments primarily for use to address repairs or improvements to one's home.
Depreciation – The rate of decrease in a home's value.
Expected Interest Rate – The interest rate that is used to calculate the loan amount available to the borrower. It is used only to calculate loan advances, and is never actually used to calculate accrued interest.
Federal Housing Administration(FHA) – The part of the HUD that insures HECM loans.
Fixed Monthly Loan Advances – Advances from the proceeds of a HECM that are the same each month. These advances can be altered at later stages throughout a HECM duration.
Home Equity – The portion of the value of your home that you do not owe through a mortgage.
Initial Interest Rate – The rate at which interest would begin to accrue if the borrower closed the loan on the day the calculations are done.
LIBOR – London Interbank Offered Rate, one of the indices's HECM loan interest rates are based upon.
Loan Advance – Payment made to a borrower or to another party on behalf of a borrower.
Margin – The portion of the interest rate charged by the lender. The margin is added to the index to determine the initial, current, and expected interest rates.
Maximum Claim Amount(MCA) – Either the appraised value or the home, or the national mortgage limit, which ever is less. This is the amount that HUD will pay to a lender on a claim for insurance benefits on a mortgage.
Principal Limit – Is the current maximum permissible mortgage balance for a borrower. It represent the most cash a borrower could get in a lump sum at closing in cash. It also represent the amount at any given time a borrower can access.
Monthly Servicing Fee – Is the fixed dollar amount that is added to the loan balance each month to pay for all services after the loan closes. Also known as the "service fee set aside". The service fee equates to between $30-$35 each month.
Non-Recourse Mortgage – This means the borrower, or his/her estate will never owe more than the loan balance or the value of the home. No other assets other than the house must be used to repay the debt.
Initial Mortgage Insurance Premium – Is the first part of the HECM insurance premium(MIP), which is calculated at 2% of the maximum claim amount.
Origination Fee – The amount paid to the broker or bank for preparing the documents and activities for originating the HECM.
Property Tax Deferral(PTD) – A form of reverse mortgage provided by local or state government meant to pay for property taxes.
Proprietary Reverse Mortgages – A reverse mortgage product owned by a private company.
Rescission – The right to cancel an agreement before it becomes binding. Usually the first three days after an agreement is entered into. To learn more about Reverse Mortgages contact our office and speak with a HUD approved Reverse Mortgage Counselor.