Reverse Mortgage Jargon – Frequently Used Terms

As with any loan or financial agreement, HECMs or reverse mortgages come with their own unique terminology. Here is a quick explanation of frequently used terms so that interested borrowers can familiarize themselves with this type of mortgage product:

• FHA (Federal Housing Administration) — The government agency that offers HECM reverse mortgages and insures them. Any borrower taking out an HECM must do so only with an FHA-approved lender.
• HUD (The U.S. Department of Housing and Urban Development) — Reverse mortgage borrowers are required to take part in HUD-approved consumer education sessions, presented by a certified HECM counselor.
• HECM (Home Equity Conversion Mortgage) — This is the actual name of the reverse mortgage program offered by the FHA that enables Americans who are 62 years of age and older to convert some of the equity in their property into cash without having to make monthly mortgage payments or move out of their home.*
• LOC/RMLOC (Reverse Mortgage Line of Credit) — This is one of the three payout options for HECM borrowers.
• HELOC (Home Equity Line of Credit) — This is an alternative to a reverse mortgage. HELOCs are similar to a reverse mortgage in that they both offer borrowers a line of credit through their equity. However, unlike a reverse mortgage, a HELOC must be repaid within a certain period of time. HECMs, aka reverse mortgages, do not need to be repaid unless the borrower moves out of the home, passes away, or fails to pay their homeowners insurance and/or property taxes. Also, with an HECM line of credit, any unused portion of the line grows month to month. Therefore, with an HECM line of credit, borrowers can potentially have a higher credit line the longer they go without using it. By contrast, a HELOC is for a set amount that doesn’t change.
• FA (Financial Assessment) — Prospective HECM borrowers are required to have their credit history and financial history reviewed and approved before being granted a reverse mortgage.
• MIP (Mortgage Insurance Premium) — Essentially, this is an insurance policy. The requirement of an MIP applies to any borrower using an FHA product who is putting down less than 20 percent on a home purchase.
• IDL (Initial Disbursement Limit) — This term applies to the maximum amount of principal that is allowed at closing and through the first year of the loan.
• LIBOR (London Interbank Offered Rate) — In financial circles, LIBOR is known as the “benchmark” rate that major banks worldwide charge each other for short-term loans. It also plays a role in how interest rates are calculated.

*HECMs require borrowers to continue to pay property taxes and homeowners insurance premiums. HECMs are called due when the last surviving borrower no longer uses the property as their primary residence.

To learn more about eligibility requirements and all the ways that a reverse mortgage could boost your financial freedom in the coming years, please contact one of our experienced loan consultants.