Unfamiliar words can create assumption or hesitation. Navigate the ways of a reverse mortgage by getting more information. Here is clarification on what these frequently used terms mean.
Adjustable Rate: The interest rate may increase or decrease throughout the life of the loan . The client can choose to receive their funds in various ways: fixed rate, line of credit, monthly payments, or any combination of the three.
Appraisal: An FHA appraiser will inspect the client’s home and compare prices in the area to determine the value of the home . The appraiser will also determine whether or not further repairs on the property need to be made before moving forward with the process.
Appraised Value: A monetary evaluation of the client’s home value according to the FHA approved appraiser.
Closing: A signing where the client will be assisted by a notary to review and sign the final documents for the loan.
Closing Costs: The payment that is needed to close the loan. This payment includes Mortgage Insurance Premium, an Orientation Fee, a Servicing Fee, and other costs.
Counseling: At the beginning of the reverse mortgage process, the client will be educated by a third party, HUD approved counselor. The counselor will provide more information about the reverse mortgage, answer any questions, and discuss other financial options the client may have. Distribution: Following closing and the three day rescission period, the client receives the reverse mortgage proceeds through their preferred loan option.
Federal Housing Administration (FHA): The U.S. government agency that insures the conversion mortgage.
Financial Assessment: An assessment for financial review of income, assets and credit history (credit scores are not required). This is to ensure the client is in a financially stable position to follow through with the responsibilities of the loan, including paying property taxes, homeowners insurance, and home maintenance costs.
HECM Fixed Rate: The interest rate is locked in at closing and is the same rate throughout the life of the loan. Clients may only receive their funds in the form of one lump sum payment.
HECM Line of Credit: A way to receive payments with the benefit of having the client’s available funds increase over time. The line of credit is accessible whenever the client wishes to withdraw money. With this option, the interest rate may increase or decrease.
HECM for Purchase: Allows the client to use a reverse mortgage to purchase a new home without having to make a monthly mortgage payment. However, the client is still responsible for paying property taxes, homeowners insurance, and maintenance costs.
Home Equity: The value of a home subtracting the market value from the outstanding balance of the liens owned.
Home Equity Conversion Mortgage (HECM): A substitution term for a reverse mortgage.
Licensed Specialist: An aid to guide the client through the reverse mortgage process and answer any questions the client may have. The licensed specialist will assist the client in filling out the application.
Loan Balance: The amount owed on the loan. The loan does not come due until the last homeowner vacates the home or passes away. It could also come due if the homeowner does not uphold the responsibilities of the loan. There are multiple ways to pay off the loan given the circumstance.
Mortgage Insurance Premium (MIP): An upfront payment from the client to the FHA for loan insurance. This solidifies the reverse mortgage as a non-recourse loan.
Non-Recourse Loan: The client will never owe more than the value of the home. FHA is responsible for paying the difference if the home sells for less than what is owed.
Orientation Fee: The FHA sets an amount paid to the lender for producing and executing the loan.
Reverse Mortgage: A government ensured loan that takes the value of the home and transfers equity into funds for the client to use however they like after paying off their remaining mortgage balance (if they have one).
Servicing Fee: The fee amount paid to the lender and used to put towards monthly costs for maintaining the loan.
United States Department and Urban Development (HUD): The U.S. government agency that creates regulations for lenders that provides security for clients.