At Retirement Life Funding, we want to help our clients fully understand the reverse mortgage program. As such, we have prepared this list of terms that are sometimes used during the reverse mortgage process. This list of terms is provided to supplement our other information. Our Reverse Mortgage Specialists are available to answer any questions.
Adjustable Rate Mortgage (ARM) – With an adjustable rate mortgage, the interest rate changes at specified times over the course of the loan. Many government-insured reverse mortgages are adjustable rate mortgages. However, not all reverse mortgages are adjustable rate mortgages. Several reverse mortgage funding companies offer a fixed-rate reverse mortgage. Because Retirement Life Funding works with several different reverse mortgage funding companies, we are able to offer adjustable rate and fixed rate reverse mortgages. Because the best reverse mortgage for you depends on your specific situation, contact your Reverse Mortgage Specialist who will discuss with you the different alternatives and help you choose a reverse mortgage that best suits your unique needs.
Annuity – Most commonly purchased from an insurance company, an annuity is generally purchased with a single lump sum payment and repaid to you as a series of equal payments paid at regular intervals for the rest of your life. At Retirement Life Funding, we are not an insurance company and we do not sell annuities, so you never have to worry about being sold a financial or insurance product that may not be right for you. If you choose to use your reverse mortgage proceeds to purchase an annuity, we recommend that you review your options with expert financial assistance.
Appraisal – An appraisal is a professional estimate of the value of your home. To estimate the value, an appraiser looks at recent selling prices of other similar homes in your neighborhood.
Cap – The cap limits the amount that an adjustable interest rate may increase or decrease during a specific period of time.
Closing – The closing is a meeting where all the loan documents are signed. It is also sometimes called the settlement. At Retirement Life Funding, we will work with you to schedule your closing at a time and location that is convenient for you, even in your home. In addition, your Reverse Mortgage Specialist can accompany you to the closing to ensure that you understand every step of the reverse mortgage process and make sure that you never feel alone during any part of the process.
Closing Costs –The closing costs are the various fees that must be paid at closing. Generally, closing costs are financed into the loan, so your out of pocket fees are very low or zero. Typical fees include an appraisal, title policy, credit report, attorney cost, recording fees/taxes, a lender origination fee and a 2% mortgage insurance premium paid to the Federal Government. Retirement Life Funding will review the cost specific to your situation prior to a loan application and will provide you with a Good Faith estimate of the Closing Cost at application.
Counseling – Before you can obtain a government-insured reverse mortgage, you are required by the government to discuss the loan with a counselor employed by a nonprofit or public agency approved by the US Department of Housing and Urban Development. You may speak with the counselor either by phone or in person. The counseling session generally has fee of $125, but may be waived or financed in some circumstances. Your Reverse Mortgage Specialist will provide you with the contact information of several approved counselors.
Credit Line – A credit line provides a borrower with access to available funds. It is also commonly referred to as a line of credit. With a credit line, the borrower can choose when and how much to borrow at any time. As with most credit lines, these funds can be repaid and reborrowed as your situation changes. In addition, with a credit line from a government-insured reverse mortgage, access to funds within your credit line is guaranteed by the Federal Government. The lender can never reduce or cancel the amount of funds available. In fact, the amount of money that is available through the credit line is designed to increase over time. Contact your Reverse Mortgage Specialist for further details regarding how a credit line would work for you.
Department of Housing and Urban Development (HUD) – The Department of Housing and Urban Development is the division of the Federal Government that oversees the Home Equity Conversion Mortgage (HECM) Program.
Equity – Your home equity equals the amount you could sell your home for minus any debts you owe on the home. For example, if your home is worth $200,000 but you still have a $50,000 mortgage, then your home equity would be $150,000.
Expected Interest Rate – For a government-insured reverse mortgage, the expected interest rate is used to determine the amount of money you are able to receive from a reverse mortgage. The expected interest rate equals the expected index plus a margin.
Federal Housing Administration (FHA) – The Federal Housing Administration is the agency within the Department of Housing and Urban Development that is responsible for administering the Home Equity Conversion Mortgage (HECM) Program.
Fixed Rate Mortgage – A fixed-rate mortgage is a loan in which the interest rate does not change during the term of the loan. Because Retirement Life Funding works with several different reverse mortgage funding companies, we are generally able to offer adjustable rate and fixed rate reverse mortgages. Because the best reverse mortgage for you depends on your specific situation, contact your Reverse Mortgage Specialist who will discuss with you the different alternatives and help you choose a reverse mortgage that best suits your unique needs.
Home Equity Conversion Mortgage (HECM) – A Home Equity Conversion Mortgage is a government-insured reverse mortgage. With the government insurance, the amount of debt that will have to be repaid if the home is sold can never be greater than the value of the home. Further, the Federal Government ensures that you receive all scheduled payments.
Index – The index, plus a margin, equals the interest rate of your reverse mortgage. The index is a published interest rate that represents the value of securities that make it up. Often different reverse mortgage funding companies offer different indices as well as different margins. Because of our relationship with several reverse mortgage funding companies, we can work with you to choose a reverse mortgage program that best suits your needs.
Initial Interest Rate – For a government-insured reverse mortgage, the initial interest rate is the first interest rate charged on the loan beginning at closing. The initial interest rate equals the initial index plus the margin.
Lien – A lien is a security interest granted over a property to secure payment of a debt or mortgage. Generally, before you can obtain a reverse mortgage all liens must be paid or removed from the property. In most cases, the proceeds from a reverse mortgage can be used to pay off existing liens.
Line of Credit – A line of credit provides a borrower with access to available funds. It is also commonly referred to as a credit line. With a line of credit, the borrower can choose when and how much to borrow at any time. As with most lines of credit, these funds can be repaid and reborrowed as your situation changes. In addition, with a line of credit from a government-insured reverse mortgage, access to funds within your line of credit is guaranteed by the Federal Government. The lender can never reduce or cancel the amount of funds available. In fact, the amount of money that is available through the line of credit is designed to increase over time. Contact your Reverse Mortgage Specialist for further details regarding how a line of credit would work for you.
London Inter Bank Offered Rate (LIBOR) – Some reverse mortgage funding companies, base their interest rates on the LIBOR instead of U.S. Treasury Securities. A reverse mortgage based on the LIBOR works the same as reverse mortgages based on U.S. Treasury Securities. Because Retirement Life Funding has relationships with several reverse mortgage funding companies, we are able to offer reverse mortgages based on both the LIBOR and U.S. Treasury Securities. As a result, we can provide you with different options to help you get the most money possible from your reverse mortgage.
Lump Sum – A lump sum is a payment option for a reverse mortgage. With a lump sum, you receive a check for all of the funds from the reverse mortgage at the time of closing. You then determine how to use your money.
Margin – It is the combination of the margin and the index that determine the interest rate for your reverse mortgage. Often different reverse mortgage funding companies offer different margins as well as different indices. Because of our relationship with several reverse mortgage funding companies, we can work with you to choose a reverse mortgage program that best suits your needs.
Maturity – The maturity is when a loan becomes due and must be repaid. With a reverse mortgage, a loan comes to maturity when the borrower no longer permanently resides in the home.
Maximum claim amount – For a government-insured reverse mortgage, the maximum claim amount is the lesser of the appraised value of the home and $417,000, which is the nationwide limit established by Congress. In other words, if you home appraises for less than $417,000 then the maximum claim amount is the appraised value of your home. But, if your home appraises for more than $417,000 then the maximum claim amount is $417,000. Along with the age of the youngest borrower and the interest rate, the maximum claim amount is used to calculate the amount of money that can be received from a reverse mortgage. You are able to borrower a percentage of the maximum claim amount based on your age and current interest rates.
Mortgage Insurance Premium (MIP) – For government-insured reverse mortgage programs, the mortgage insurance premium is the amount paid to the Federal Government for mortgage insurance. The amount is currently 2% of the maximum claim amount and is refunded if you are refinancing an existing government-insured reverse mortgage. The mortgage insurance from the Federal Government protects you and your heirs by ensuring that you receive all of your scheduled payments and that the amount that you have to repay when the home is sold is never greater than the value of the home.
Nonrecourse loan – A nonrecourse loan means that the total amount of debt that will have to be repaid if the home is sold can never be greater than the value of your home. Government-insured reverse mortgages are nonrecourse loans. As a result, they are very safe for both you and your heirs.
Origination Fees – Origination fees are the fees paid by the borrower cover the upfront cost of a loan, including processing the loan and preparing all documents. To protect borrowers, the Federal Government limits the amount of origination fees that a borrower can be charged.
Planned Unit Development (PUD) – A planned unit development is a type of housing development that requires membership in a homeowners association. It often consists of a subdivision that shares common property, such as a pool, clubhouse or golf course. Generally, homes located within a planned unit development are eligible for a reverse mortgage.
Principal Balance – The principal balance is the total of all loan advancements, including all interest and fees.
Principal Limit – The principal limit is the maximum amount that can be received by the borrower for a government-insured reverse mortgage. The principal limit is calculated by taking into account the age of the youngest borrower, the interest rate, and the maximum claim amount.
Reverse Annuity Mortgage (RAM) – A reverse annuity mortgage is another name sometimes used for reverse mortgages. It specifically refers to a reverse mortgage in which the borrower has chosen to receive their funds in the form of a monthly income for life.
Reverse Mortgage – A reverse mortgage is a special type of loan that allows homeowners generally 62 years and older to safely turn the equity in their homes into cash. A reverse mortgage never has to be repaid as long as the borrower lives in the home and the proceeds from a reverse mortgage can be used in any way the borrower chooses.
Servicing Fee – The servicing fee is a small monthly fee paid each month to cover the cost of servicing the loan. The servicing fee covers services such as sending checks, updating information, changing preferred payment options, and providing regular statements. The monthly fee is financed into the cost of the loan and is not paid out of pocket.
Settlement – Settlement, also called the closing, is a meeting where all the loan documents are signed. At Retirement Life Funding, we will work with you to schedule your settlement at a time and location that is convenient for you, even in your home. In addition, your Reverse Mortgage Specialist can accompany you to the settlement to ensure that you understand every step of the reverse mortgage process and make sure that you never feel alone during any part of the process.
Tenure payments – Tenure payments are fixed monthly loan advances made for as long as the borrower lives in the home. It is one of the payment options possible with a reverse mortgage. Your Reverse Mortgage Specialist can determine how tenure payments would work for you and compare that to other payment options to help you choose a payment option that best suits your needs.
Term payments – Term payments are fixed monthly loan advances made for a specific period of time. It is one of the payment options available with a reverse mortgage. Your Reverse Mortgage Specialist can determine how term payments would work for you and compare that to other payment options to help you choose a payment option that best suits your needs.
Total Annual Loan Cost (TALC) – The Total Annual Loan Cost is the estimated annual cost of a reverse mortgage. It is there to help you understand the cost of the loan. However, it is only an estimate and you do not pay anything until the entire loan balance is due when you permanently leave the home.
