Below is a mortgage glossary of terms. There may be words listed that no longer apply in todays market. Please call us if you have any questions.
A B C D E F G H I J K L M N O P Q R S T U V W X Y Z
A
Appraised Value
The value of a home as determined by a licensed appraiser, used to calculate how much equity can be accessed in a reverse mortgage.
Adjustable Rate Mortgage (ARM)
An Adjustable Rate Mortgage (ARM) is a type of mortgage where the interest rate can change periodically based on the performance of a specific benchmark or index. Initially, the interest rate is fixed for a set period, after which it adjusts at regular intervals (e.g., annually). ARM loans usually have caps on how much the interest rate can increase or decrease per adjustment period or over the life of the loan.
Adjustment Period
The adjustment period is the interval of time between changes in the interest rate on an adjustable-rate mortgage (ARM). For example, if an ARM has a one-year adjustment period, the interest rate will adjust once per year after the initial fixed-rate period.
Amortization Schedule
An amortization schedule is a table that details each periodic payment on a loan (typically a mortgage), breaking down how much of each payment goes toward principal repayment and how much goes toward interest. The schedule also shows how the loan balance decreases over time as payments are made.
Annual Percentage Rate (APR)
The Annual Percentage Rate (APR) is the yearly cost of a loan expressed as a percentage. It includes both the interest rate and any additional fees or costs associated with the loan, providing a more accurate representation of the loan’s total cost than the interest rate alone.
Appraisal
An appraisal is a professional assessment of a property's market value, conducted by a licensed appraiser. The appraisal is typically required by lenders to ensure that the property's value supports the loan amount being sought.
Appreciation
Appreciation refers to the increase in the value of a property over time due to factors such as market demand, inflation, or improvements made to the property. In real estate, appreciation can result in a higher sale price or more home equity for homeowners.
C
Closing Costs
Fees associated with obtaining a reverse mortgage, including appraisal fees, origination fees, title insurance, and other administrative costs.
Collateral
Collateral is an asset or property that a borrower offers to a lender as security for a loan. If the borrower defaults on the loan, the lender has the right to seize the collateral to recover the loan amount. In real estate, the property being purchased or mortgaged typically serves as the collateral for the loan.
Condominium
A condominium, or condo, is a type of residential property where individuals own individual units within a larger building or complex, while the common areas (such as lobbies, hallways, and amenities) are jointly owned and maintained by the homeowners' association (HOA). Condo owners typically pay HOA fees to cover the costs of maintenance and shared services.
D
Deed
A deed is a legal document that transfers ownership of real property from one party to another. It contains important details about the property, the parties involved, and any terms or conditions of the transfer. A deed must be signed and typically notarized to be legally binding, and it is often recorded in public records to formalize the ownership change.
E
Equity
The difference between the home’s market value and the remaining balance on any existing mortgage, which is the amount the homeowner can access through a reverse mortgage.
F
Financial Assessment
An evaluation by the lender to determine if the borrower can afford property taxes, homeowner’s insurance, and home maintenance.
Fixed Rate Mortgage
A Fixed Rate Mortgage is a type of mortgage loan where the interest rate remains the same for the entire term of the loan, regardless of market fluctuations.
G
Gift Letter
A Gift Letter is a document provided by a borrower that states that funds received from a friend or family member are a gift, not a loan, and do not need to be repaid. This letter is typically required by mortgage lenders when the borrower uses gifted money toward the down payment or closing costs, ensuring the funds are not adding to the borrower’s debt obligations.
Good-Faith Estimate (GFE)
A Good-Faith Estimate (GFE) was a document that provided an estimate of the costs and fees associated with obtaining a mortgage. The GFE listed expected closing costs, loan terms, and interest rates, helping borrowers compare loan offers from different lenders. In traditional forward mortgages, the GFE has been replaced by the Loan Estimate form since 2015, which serves the same purpose under new regulations; reverse mortgages still use the GFE.
H
Home Equity Conversion Mortgage (HECM)
The most common type of reverse mortgage, insured by the Federal Housing Administration (FHA).
Homeowner’s Insurance
Homeowner’s Insurance is a broader policy that covers both the structure of the home and the homeowner’s personal property, as well as liability protection in case someone is injured on the property. It typically includes hazard insurance, but also covers theft, vandalism, and certain types of liability.
HUD-1 Settlement Statement
The HUD-1 Settlement Statement is a detailed document provided to borrowers and sellers at closing, outlining all costs and fees associated with a real estate transaction. The HUD-1 was previously used for most mortgage loans but has largely been replaced by the Closing Disclosure since 2015 for most home purchases. The HUD-1 is still used for reverse mortgages and some other types of loans.
I
Index
An Index is a financial benchmark used to calculate the interest rate for adjustable-rate mortgages (ARMs). The index reflects market conditions, and when combined with the lender’s margin, determines the rate adjustment on the loan. Common indices include the London Interbank Offered Rate (LIBOR) or the U.S. Treasury securities rate.
Interest
Interest is the cost of borrowing money, expressed as a percentage of the loan amount. When a borrower takes out a mortgage, they pay interest on the loan balance, which compensates the lender for providing the loan. Interest can be fixed or variable, depending on the type of loan.
Interest Rate (Fixed vs. Variable)
The cost of borrowing money, expressed as a percentage. Fixed interest rates remain the same for the life of the loan, while variable interest rates can fluctuate over time.
L
Line of Credit (Reverse Mortgage)
A payout option where the borrower can withdraw funds as needed, and only pay interest on the amount drawn.
Loan Balance
The total amount owed on a reverse mortgage, including the amount borrowed, accrued interest, and fees.
Loan Maturity
The point at which the reverse mortgage becomes due and must be repaid, typically when the homeowner sells the home, moves out, or passes away.
Lump Sum
A payout option where the borrower receives the entire loan amount at once, typically at a fixed interest rate.
M
Margin
The margin is the fixed percentage added to the index rate in an adjustable-rate mortgage (ARM) to determine the total interest rate the borrower pays. For example, if the index rate is 3% and the margin is 2%, the total interest rate would be 5%. The margin remains constant throughout the life of the loan, even if the index rate fluctuates.
Market Value
Market value is the estimated price that a property would sell for on the open market, based on factors such as location, condition, and current demand.
Mortgage
A mortgage is a type of loan used to purchase or refinance real estate.
Mortgage Insurance Premium (MIP)
Fees paid on HECM reverse mortgages to the FHA to protect both the borrower and lender. It includes an upfront premium and ongoing monthly premiums.
N
Non-Recourse Loan
A loan where the borrower or their heirs will not owe more than the value of the home when it is sold, even if the loan balance exceeds the home’s value.
P
Principal Limit
The maximum amount of money a borrower can receive from a reverse mortgage, determined by factors such as the home’s value, the borrower’s age, and current interest rates.
Proprietary Reverse Mortgage
A private reverse mortgage offered by lenders for homes with high values, often offering higher loan amounts than HECMs.
R
Refinance
Refinancing is the process of replacing an existing loan with a new one, typically with different terms. Homeowners often refinance their mortgage to secure a lower interest rate, reduce monthly payments, shorten the loan term, or switch from an adjustable-rate mortgage to a fixed-rate mortgage. Refinancing can also be used to access a home’s equity through a cash-out refinance.
Replacement Cost
Replacement cost is the amount of money it would take to replace or rebuild a property or structure with similar materials and quality, at current prices. In homeowner’s insurance, this is the cost to rebuild the home in the event of a total loss, such as from a fire or natural disaster, without factoring in depreciation.
Residual Value
The remaining equity in the home after the reverse mortgage loan is repaid.
Reverse Mortgage
A loan available to homeowners aged 62 and older that allows them to convert part of their home equity into cash without making monthly mortgage payments. The loan is repaid when the home is sold, the homeowner moves out, or the homeowner passes away.
Reverse Mortgage Counseling
Mandatory counseling for HECM borrowers to ensure they understand the terms and implications of the reverse mortgage.
S
Servicer
The company that manages the reverse mortgage, handling payments, communication, and administration of the loan.
Set-Aside
A portion of the reverse mortgage funds reserved by the lender to cover future property taxes, insurance, or repairs.
Single-Purpose Reverse Mortgage
A reverse mortgage offered by some state and local government agencies or nonprofits, designed for a specific purpose such as home repairs or property taxes.
T
Tenure Payments
Fixed monthly payments made to the borrower for as long as they live in the home.
Term Payments
Fixed monthly payments made to the borrower for a specific period of time, such as 10 or 20 years.
Title
Title refers to the legal ownership of a property. When you hold the title to a property, you have the legal right to use, control, and transfer ownership of the property. In real estate, the title is documented through a deed, and having a "clear title" means the property is free of any liens, legal disputes, or claims.
Truth-in-Lending Act (TILA)
The Truth-in-Lending Act (TILA) is a federal law designed to protect consumers in credit transactions by requiring lenders to disclose important information about loan terms and costs. Under TILA, lenders must provide clear details about the annual percentage rate (APR), total costs, payment schedules, and other significant terms to ensure borrowers can make informed decisions about credit agreements.
U
Underwriting
Underwriting is the process used by lenders to assess the risk of approving a loan for a borrower. During underwriting, the lender evaluates the borrower’s financial information, such as credit score, income, assets, and debts, as well as the value of the property being purchased. The goal is to determine whether the borrower qualifies for the loan and under what terms, including the interest rate and loan amount. In mortgage lending, underwriting ensures that the borrower has the ability to repay the loan and that the property meets the lender’s criteria.