Reverse Mortgage Loan Vocabulary

Reverse mortgages are home loans, but they have a terminology all their own. Here are some of the reverse mortgage terms that you may not know. These are frequently used by reverse mortgage lenders when working with a client on a new loan.

CMT - CMT stands for Constant Maturity Treasury. This is one of the indices used to determine the adjustable interest rate of a reverse mortgage.

DPL - DPL stands for Deferred Payment Loans. State and local governments sometimes offer these loans to seniors to make qualified repairs to their homes. These may also be called "special purpose loans."

FHA - FHA stands for Federal Housing Administration. The FHA is a division of HUD and is the agency that insures HECM reverse mortgages.

HECM- HECM stands for Home Equity Conversion Mortgage. It is commonly pronounced "heck'em" by reverse mortgage lenders. The vast majority of reverse mortgage loans are HECM. They are insured by the FHA.

HUD - HUD stands for US Department Of Housing And Urban Development. This government agency is the umbrella over all housing-related issues in the US. The FHA is a division of HUD.

Index - Most reverse mortgages have an adjustable interest rate. The interest rate is determined using an index plus a margin. Typical indices used include the CMT and the LIBOR.

LIBOR - LIBOR stands for London Interbank Offered Rate. This is one of the indices used to determine the adjustable interest rate of a reverse mortgage.

Margin - An adjustable interest rate is determined by adding a margin to an index. For example, if your reverse mortgage used LIBOR plus a margin of 2.5%, you would look up the current LIBOR rate online and add 2.5% to calculate the interest rate you are paying.

PTD- PTD stands for Property Tax Deferral. PTDs are a type of reverse mortgage sometimes offered by state or local governments to seniors who are unable to pay their property taxes. These are sometimes referred to as "special purpose loans."

TALC - TALC stands for Total Annual Loan Cost. Under the Truth-In-Lending Act, reverse mortgage lenders are required to provide you with a TALC disclosure. The disclosure is designed to inform you of the costs associated with a reverse mortgage loan. A TALC disclosure on each of the different reverse mortgage loan options that you are considering will help you compare their costs side by side.

Seniors who opt for an HECM loan are required to go through mortgage counseling before closing on their reverse mortgage. Understanding these terms can help you get more out of your counseling sessions.