Glossary of Reverse Mortgage Terms

Adjustable‑Rate Mortgage
A loan with an interest rate that changes with market conditions on pre‑determined dates.

Annual Percentage Rate (APR)
A term used to represent the percentage relationship of the total finance charge to the amount of the loan, over the term of the loan. Do not confuse the APR with your quoted interest rate, which is used to determine your monthly principal and interest payment. The APR reflects the cost of your mortgage loan as a yearly rate. It will be higher than the interest rate stated on the note because it includes (in addition to the interest rate) loan discount points, fees and mortgage insurance.

Appraisal
A report written by a qualified expert that states an opinion on the value of a property, based on its characteristics and the selling prices of similar (or comparable) properties in the area.

Appreciation
An increase in the value of a house due to changes in market conditions or other causes.

Automated Underwriting
A computerized method of reviewing home mortgage applications for loan approval.

Certified Senior Advisor / (CSA)
Certified Senior Advisors (CSA) are professionals who have had extensive training and passed a comprehensive examination regarding financial and social concerns facing seniors. CSA’s have a professional responsibility code encompassing the following principles: competence, confidentiality, professionalism, fairness, integrity, and diligence.

Clear Title
Ownership of a property that is free of liens and/or legal question, as to the rightful ownership of the property.

Closing
The final step after a lender approves an application. The occasion when a borrower signs loan documents, including the mortgage or deed of trust. Also referred to as the “settlement”.

Closing Agent
Usually an attorney or title agency representative who oversees the closing and witnesses the signing of the closing documents.

Closing Costs
The costs to obtain a mortgage loan. Closing costs cover any services and charges – such as title search and insurance, appraisals, surveys, credit histories, required inspections, taxes, and recording fees – that are necessary to complete the transaction.

Commitment Letter
A binding, written pledge by the lender to a mortgage applicant to make a loan – usually under certain stated conditions.

Consumer Counseling Session
A brief consumer education session with a HUD‑approved counselor, typically conducted by phone, required by the FHA as part of the application process. The purpose of this session is to help you review the financial options available and to ensure you understand your choice.

Credit Report
A report issued by an independent agency which contains certain information concerning a mortgage applicant’s credit history and current credit standing.

Deed of Trust
The legal document conveying title of a property.

Equity
Your ownership interest – that portion of a property’s value which exceeds the amount of any outstanding loans on the home. For example; if a property is worth $200,000 and carries a $50,000 loan, then you would have $150,000 (or, 75%) equity in your home.

Good Faith Estimate
A document that tells mortgage borrowers the approximate costs associated with their mortgage, based on common practices in the locality.

Home Equity Conversion Mortgage (HECM)
A type of FHA insured Reverse Mortgage.

Home Keeper™ Mortgage
A type of Fannie Mae Reverse Mortgage.

Homeowner's Insurance / (also called Hazard Insurance)
A real estate insurance policy required of the homeowner protecting the property against loss caused by fire, some natural causes, vandalism, etc. May also include added coverage such as personal liability and theft away from the home.

“HUD‑1" Settlement Statement
A standard form used to disclose costs at closing.

Index
Interest rate adjustments on adjustable‑rate mortgage (ARM) loans are based on a specific “index” or treasury issue (bond) which is selected because it is a reliable, familiar financial indicator. Your monthly interest rate will be adjusted up or down, in relation to this market indicator, plus the margin specified in your note.

Interest Rate
The rate of interest that is charged by a lender for the use of money, usually expressed as an annual percentage rate (APR).

Lien
A legal claim against a property as security for re-payment of an obligation.

Loan Balance
The outstanding balance of a Reverse Mortgage loan; equal to the principal amount, plus financed fees, plus all accrued interest.

Loan Conditions
These are terms under which the lender agrees to make the loan. They include the interest rate, length of loan agreement, and any requirements the homeowner must meet prior to closing.

Loan Proceeds
Payments to a customer through a Reverse Mortgage.

Loan Settlement
The conclusion of the mortgage transaction. This includes the delivery of a deed, the signing of notes, and the disbursement of funds necessary to the mortgage transaction.

Loan‑to‑Value / (LTV)
A stated ratio of the amount borrowed to the appraised value, or sales price, of real property. Expressed as a percentage.

Margin
The number of percentage points added to the “index” – used to calculate the interest rate for adjustable‑rate mortgages (ARM) at each adjustment period.

Mortgage
A legal document that pledges a property to the lender as security for payment of a debt.

Mortgagee
The lender.

Mortgage Insurance / (MI)
An insurance policy which will repay a portion of the loan if the borrower does not make payments as agreed upon in the note. In the Reverse Mortgage program, the MIP protects the lender against risk that the loan balance might, at some time, exceed the value of the home.

Mortgage Insurance Premium / (MIP)
The fee paid by a borrower to FHA, or a private insurer, for mortgage insurance.

Mortgagor
The borrower.

Note
The agreement which states the home mortgage amount to be borrowed, and the terms and conditions of the loan. It also includes a completed description of how the loan should be repaid, and the time‑frame for repayment.

Origination Fee
A fee generally equal to a set percentage of the principal amount borrowed. This reflects the costs of preparing the full loan application, all support documents, and the processing of your completed loan.

Principal
The amount of a loan, or the remaining balance of a loan, excluding interest.

Private Mortgage Insurance / (PMI)
A mortgage insurance policy on a conventional mortgage loan issued by a private insurance company.

Principal Residence
The property considered as “primary residence” of the borrower.

Processing
The completion of a mortgage loan application and supporting documents.

Rate Cap
The limit of how much the interest rate may change on an ARM at each adjustment and over the life of the loan.

Refinance
The process of paying off one loan with the proceeds from a new loan, secured by the same property.

Reverse Mortgage Specialist
An experienced mortgage professional who specializes, often exclusively, in the field of
Reverse Mortgage products and services. An accomplished “specialist” will often possess additional accreditation or certification in related services, such as a “Certified Senior Advisor”.

Servicing Fee
The fee paid by the borrower to cover record‑keeping and other administrative costs of processing mortgage payments. This flat fee is added to the outstanding loan balance
each month.

Settlement
See Closing.

Title
A legal document establishing the right of ownership.

Title Search
A check of title records to ensure that a person is the legal owner of a property, and that there are no liens or other claims outstanding on the property.

Truth‑in‑Lending Statement
Required by federal regulations, this statement tells borrowers the costs of financing their loan, expressed as the annual percentage rate (APR).

Underwriting
The process of a lender reviewing the application, documentation, and property prior to rendering a loan decision.

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