Learn the most common terms you will likely hear when going through the reverse mortgage loan process.
Key Reverse Mortgage Terms
Here are the key terms you need to know to help you understand the reverse mortgage loan process.
Adjustable Rate Mortgage - Most reverse mortgages do not have a fixed interest rate, although that option is available. Instead, the reverse mortgage rate adjusts either twice a year or annually. The most common indices used to calculate a reverse mortgage rate are the CMT and the LIBOR.
CMT - The Constant Maturity Treasury is often used as the index used to calculate an adjustable reverse mortgage rate. It is a domestic index.
FHA - The Federal Housing Administration (FHA) is the government agency that insures HUD reverse mortgages called HECMs, the most common type of reverse mortgage.
HECM- Home Equity Conversion Mortgage (HECM), pronounced Heck'em, is the most common type of reverse mortgage. It is insured by the FHA and follows FHA loan limit restrictions.
HUD - US Department Of Housing And Urban Development (HUD) offers the most common type of reverse mortgage, an HUD reverse mortgage, also known as HECM.
Jumbo Reverse Mortgage - If you need to borrow more than the FHA allows, you can ask your reverse mortgage lender about jumbo reverse mortgages. Non-government investors offer reverse mortgages that have expanded approval guidelines. You may expect to pay a higher reverse mortgage rate for this type of loan.
LIBOR - The London Interbank Offered Rate is currently the most popular index used to calculate a reverse mortgage rate. Whereas the CMT is a domestic index, the LIBOR is global and preferred by investors.
Line Of Credit - Take the equity from your home only as necessary and save money in interest. The line of credit is another payment option.
Loan Limits - It is possible that even if your house is worth a million dollars you may only be able to borrow $300,000. The FHA sets limits by county according to the median home price for the area. To check the FHA loan limit in your county, click here.
Lump Sum - If you need to pay off an existing mortgage and end monthly mortgage payments, you would use the lump sum payment option. If after paying off your debts you still have equity available, you can add a line of credit.
Maximum Claim Amount - You may better understand this term if you think of it as your loan amount. It is the maximum amount of loan proceeds you can get using an FHA-insured reverse mortgage.
Tenure - Payments for life is what you can depend on if you choose to take your equity using the tenure payment option.
Term - One of the ways you can take your equity using a reverse mortgage is with the term payment option. Term means you get a set amount of money for a set number of months.
Renee Morgan has been a loan officer for over eighteen years. She is also a freelance writer and guest expert for radio and TV.