ELIGIBILITY QUIZ
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A
Adjustable Rate
A type of reverse mortgage where the interest rate can change over time based on market conditions. Adjustable rate reverse mortgages typically offer more flexible disbursement options, including a line of credit that grows over time.
Age Eligibility
The minimum age requirement for a reverse mortgage borrower. For HECM (Home Equity Conversion Mortgage) loans, the youngest borrower must be at least 62 years old. The older the borrower, the more money they may qualify to receive.
Annual Percentage Rate (APR)
The total cost of the loan expressed as a yearly rate, including interest and fees. APR provides a more complete picture of loan costs than the interest rate alone.
Appraisal
A professional evaluation of a home’s current market value conducted by a licensed appraiser. The appraisal is required for all reverse mortgages and helps determine how much money the borrower can receive.
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B
Borrower
The homeowner who takes out a reverse mortgage. All borrowers must be at least 62 years old, occupy the home as their primary residence, and meet financial eligibility requirements.
C
Closing Costs
Fees and expenses paid at the closing of a reverse mortgage, which may include origination fees, appraisal fees, title insurance, recording fees, and other charges. These costs can often be financed into the loan.
Co-Borrower
A second borrower on the reverse mortgage, typically a spouse. Both borrowers must meet age and occupancy requirements to remain protected under the loan terms.
Counseling
A mandatory requirement for HECM reverse mortgages where borrowers meet with an approved HUD counselor to discuss the loan terms, alternatives, and financial implications. This ensures borrowers fully understand the product.
D
Disbursement Options
The various ways borrowers can receive their reverse mortgage proceeds, including lump sum, line of credit, monthly payments (term or tenure), or a combination of these options.
Due and Payable
The status when a reverse mortgage becomes due for full repayment, typically occurring when the last borrower permanently leaves the home, sells the property, or passes away.
E
Eligible Non-Borrowing Spouse
A spouse who is under 62 years old and therefore cannot be a co-borrower, but who has certain protections that allow them to remain in the home if the borrowing spouse passes away first.
Equity
The difference between a home’s current market value and any outstanding mortgage balance. Reverse mortgages allow homeowners to convert a portion of their home equity into cash.
Expected Interest Rate
The rate used to calculate the principal limit (amount available) for adjustable rate reverse mortgages. This is different from the initial interest rate and is based on a longer-term average.
F
FHA (Federal Housing Administration)
The government agency that insures HECM reverse mortgages, providing protection for both borrowers and lenders. FHA insurance ensures the loan is non-recourse and provides access to funds even if the lender defaults.
Financial Assessment
A mandatory evaluation of a borrower’s credit history, income, and assets to ensure they can meet ongoing property charges like taxes and insurance. This assessment helps protect borrowers from default.
Fixed Rate
A reverse mortgage with an interest rate that remains the same throughout the life of the loan. Fixed-rate reverse mortgages typically only offer a lump sum disbursement option.
H
HECM (Home Equity Conversion Mortgage)
The most common type of reverse mortgage, insured by the Federal Housing Administration (FHA). HECMs are regulated by HUD and offer consumer protections including non-recourse provisions.
HECM for Purchase
A specialized reverse mortgage product that allows borrowers aged 62 and older to purchase a new primary residence using reverse mortgage proceeds, reducing or eliminating the need for monthly mortgage payments.
Home Value
The current market value of the property as determined by a professional appraisal. This value, along with borrower age and interest rates, determines how much money can be borrowed through a reverse mortgage.
HUD (Department of Housing and Urban Development)
The federal agency that oversees the HECM reverse mortgage program, establishes lending limits, and approves counselors who educate borrowers about reverse mortgages.
I
Interest Rate
The percentage charged on the outstanding loan balance. With reverse mortgages, interest accrues over time and is typically repaid when the loan becomes due and payable.
Interest Rate Cap
The maximum amount an adjustable interest rate can increase during a specific period (periodic cap) or over the life of the loan (lifetime cap), protecting borrowers from unlimited rate increases.
J
Jumbo Reverse Mortgage
A proprietary reverse mortgage for homes valued above the FHA lending limit (currently $1,149,825 in most areas). Jumbo reverse mortgages are not FHA-insured and may have different terms and requirements.
L
Lender
The financial institution that provides the reverse mortgage funds and services the loan. HECM lenders must be FHA-approved and follow HUD guidelines.
Life Expectancy Set Aside (LESA)
Funds set aside from reverse mortgage proceeds to pay future property taxes and homeowners insurance when a borrower doesn’t meet the financial assessment criteria or chooses this option.
Line of Credit
A disbursement option allowing borrowers to withdraw funds as needed, up to their available credit limit. Unused credit line portions grow over time at the same rate as the loan interest rate.
Loan Balance
The total amount owed on a reverse mortgage, including the original principal disbursed, accrued interest, and mortgage insurance premiums. This balance grows over time as interest compounds.
Lump Sum
A disbursement option where the borrower receives all available proceeds at once at closing. This option is only available with fixed-rate reverse mortgages.
M
Maturity Event
An occurrence that triggers the reverse mortgage to become due and payable, such as the death of the last borrower, sale of the home, or failure to maintain the property or pay property charges.
Monthly Payment
A disbursement option where borrowers receive equal monthly payments for a specific term (term option) or for as long as they live in the home (tenure option).
N
Non-Borrowing Spouse
A spouse who is not listed as a borrower on the reverse mortgage. Special protections may allow them to remain in the home under certain conditions if the borrowing spouse passes away.
Non-Recourse Loan
A key feature of HECM reverse mortgages ensuring borrowers or their heirs never owe more than the home’s value at the time of sale, even if the loan balance exceeds the property value. The FHA insurance covers any shortfall.
O
Occupancy Requirement
The requirement that borrowers must live in the home as their primary residence. If the borrower is absent from the home for more than 12 consecutive months (or 6 months for medical reasons), the loan may become due.
Origination Fee
A fee charged by the lender for processing the reverse mortgage application and creating the loan. For HECM loans, this fee is capped by HUD at $6,000.
P
Primary Residence
The home where the borrower lives most of the year. Reverse mortgage borrowers must occupy the property as their primary residence to maintain the loan.
Principal Limit
The maximum amount of money a borrower can receive from a reverse mortgage, calculated based on the youngest borrower’s age, current interest rates, home value, and FHA lending limits.
Principal Limit Factor (PLF)
The percentage used to calculate the principal limit. Higher ages and lower interest rates result in higher PLFs, meaning more available funds.
Proprietary Reverse Mortgage
A private reverse mortgage not insured by the FHA, typically designed for homes with values above the FHA lending limit or borrowers seeking alternative terms.
R
Refinance
Replacing an existing mortgage (including an existing reverse mortgage) with a new reverse mortgage, potentially to access additional equity, obtain better terms, or add a spouse to the loan.
Repayment
The process of paying back a reverse mortgage, which typically occurs when the home is sold after the borrower moves out or passes away. Borrowers can also make voluntary payments at any time without penalty.
Residual Income
The amount of monthly income remaining after paying for housing costs and other obligations. FHA uses residual income guidelines as part of the financial assessment to ensure borrowers can afford ongoing expenses.
Right of Rescission
A borrower’s right to cancel the reverse mortgage within three business days after closing without penalty, as required by federal law.
S
Servicing
The ongoing administration of the reverse mortgage, including disbursing funds, tracking the loan balance, ensuring property charges are paid, and managing communication with borrowers.
Set-Aside
Funds held from reverse mortgage proceeds to pay for specific purposes, such as paying off an existing mortgage, covering closing costs, or funding a Life Expectancy Set Aside (LESA) for future property charges.
T
Tenure Payment
A disbursement option providing equal monthly payments for as long as at least one borrower lives in the home as their primary residence.
Term Payment
A disbursement option providing equal monthly payments for a fixed number of months chosen by the borrower.
Third-Party Charges
Fees paid to parties other than the lender, such as appraisers, title companies, and credit reporting agencies. These are part of the total closing costs.
Total Annual Loan Cost (TALC)
A disclosure showing the projected annual average cost of a reverse mortgage under different scenarios, helping borrowers compare loan options and understand long-term costs.
U
Upfront Costs
The initial fees and charges required to obtain a reverse mortgage, including origination fees, initial MIP, appraisal fees, and other closing costs. Most can be financed into the loan.
USDA Property Eligibility
Rural properties may need verification through USDA guidelines to ensure they meet FHA property standards for reverse mortgages.
W
Withdrawal Limit
A restriction on adjustable-rate reverse mortgages limiting how much can be withdrawn in the first 12 months to 60% of the principal limit (or more if needed to pay off existing liens).
Y
Youngest Borrower
The borrower with the lowest age, which is the primary factor in calculating the principal limit. When there are multiple borrowers or a non-borrowing spouse, the youngest age is used for calculations.