How Is Your Reverse Mortgage Vocabulary?

Do You Understand these Common Reverse Mortgage Terms?

CMT - Constant Maturity Treasury, this is a common index used by reverse mortgage lenders to determine an adjustable interest rate.

Federal Housing Administration - also known as the FHA, this agency is a division of the US Department of Housing and Urban Development (HUD). The FHA insures over 90% of all reverse mortgages.

FHA Loan Limits - Recently Congress temporarily increased FHA loan limits. Normally, your limit is based on the median price of a home in a given county. Each county has its own loan limit.

HECM - see Home Equity Conversion Mortgage

Home Equity Conversion Mortgage- also know as HECM (sometimes pronounced Heck'em), this is the most common type of reverse mortgage. HECM is a HUD reverse mortgage insured by the FHA. FHA loan limits apply.

LIBOR - This is another common index used by reverse mortgage lenders. LIBOR stands for London Inter-Bank Offered Rate. This index is becoming very popular because its low rate allows for more cash proceeds.

Line of Credit - If you choose, your equity can be available on an as-needed basis through a line of credit payment option. No interest is accrued unless there is a balance on the loan. This payment option is great for unexpected expenses and other emergencies.

Lump Sum- You may choose to take all of your equity proceeds up front in a lump distribution. You might use this option to invest, pay debts, or pay off an existing mortgage.

TALC - Total Annual Loan Cost is a required consumer protection disclosure. This disclosure allows prospective borrowers to compare different loan scenarios and interest rates.

Term Distributions - This is one of the monthly payment options available on a reverse mortgage. Term means that you receive a set amount of money for a defined length of time. One example might be, $500 each month for 60 months.

Tenure Distributions - This monthly payment option is guaranteed to continue until the youngest borrower is deceased, or as long as the home is occupied. Because you receive payments for life, the reverse mortgage lender will likely be very conservative calculating this payment amount.

If you're like most people, reverse mortgages are mysterious compared to regular mortgages. That's why HUD requires that you get reverse mortgage counseling from a HUD-approved counselor before taking out a Home Equity Conversion Mortgage. Knowing the terms helps you be a more confident shopper when looking for an HECM.