Eligible Non-borrowing Spouse 

The spouse of a reverse mortgage borrower who is not listed on the mortgage but meets specific eligibility requirements set by the Federal Housing Administration (FHA). To be eligible, the non-borrowing spouse must have been married to the reverse mortgage borrower when they applied for and closed the loan and remained married and living in the home until the borrower’s passing or relocation to another facility for health reasons. A non-borrowing spouse must have been married to the borrower at the time of application and loan closing to be eligible. 

Federal Housing Administration (FHA)

Established in 1934 to increase home ownership in the United States, the Federal Housing Administration is a part of the United States Department of Housing and Urban Development (HUD). The FHA primarily provides mortgage insurance on loans by FHA-approved lenders.  

Financial Assessment 

During the reverse mortgage application process, a lender conducts a financial assessment to evaluate the borrower’s financial history, including but not limited to credit and employment history, debts, and income.  

Home Equity Conversion Mortgage (HECM) 

A home equity conversion mortgage (HECM) is the only type of reverse mortgage insured by the Federal Housing Administration (FHA).  

Home Equity Conversion Mortgage for Purchase 

A home equity conversion mortgage (HECM) used to purchase a new home. Instead of the borrower tapping existing equity with the HECM, with a HECM for purchase, they make a substantial downpayment, and the HECM pays the purchase balance. 

Life Expectancy Set Aside (LESA) 

An amount “set aside” from loan proceeds to cover insurance and property tax obligations, if the lender determines the borrower may have difficulty meeting reverse mortgage eligibility requirements.  

Mandatory Obligations  

Any fee or charge related to a home equity conversion mortgage (HECM) that must be paid to meet the mortgage terms. This includes any amounts required to discharge existing liens on the property at closing. It also consists of the amounts required to keep up the property and pay homeowner’s insurance and property taxes, as well as any other home-related fees. Reverse mortgage borrowers are not required to make monthly mortgage, principal and interest payments.

Reverse Mortgage Payment Plans 

Reverse mortgage borrowers have a variety of ways they can elect to receive their loan proceeds. If they choose to receive payments in installments, their payments can be structured in four ways.

• Tenure. The borrower receives equal monthly payments as long as they live in the home and continue to meet loan obligations.  
• Term. An equal amount each month is disbursed to the borrower over a set period. Once that period ends, payments will stop.  
• Modified Tenure. The borrower will receive a fixed monthly payment as long they remain in the home and continue to meet loan obligations.  The remaining equity is set aside as a line of credit.
• Modified Term. The borrower will receive a fixed monthly payment for a set amount of time. The remaining equity is set aside as a line of credit.

Mortgage Insurance Premium (MIP)  

The upfront and monthly premium charged a borrower for mortgage insurance on a HECM. In addition to guaranteeing the loan for the lender, this premium makes it possible for the FHA to insure HECMs against default.

The National Reverse Mortgage Lenders Association (NRLMA) 

Established in 1997, the National Reverse Mortgage Lenders Association (NRMLA) is a United States trade organization providing guidance, resources, policies, and lobbying efforts for the reverse mortgage industry.  

Net Principal Limit 

The maximum total funds available to a borrower after closing costs.

Non-recourse Loan 

Heirs or borrowers with a non-recourse loan will never owe the lender more than the home’s value when sold to settle the loan balance. In cases where the homes value is less than the value of the loan, the borrower’s or heir’s assets will not be touched to make up the difference. 

Proprietary Reverse Mortgage 

A proprietary reverse mortgage, or jumbo reverse mortgage, allows borrowers to convert their home equity into cash. These loans are not government-insured, and lenders can lend more than the federal limit. Like HECMs, they are nonrecourse. 

Reverse Mortgage 

This home loan allows individuals who meet a certain age requirement to borrow against their equity while still living in their homes. Borrowers receive loan proceeds as a lump sum, monthly payments, a line of credit, or a combination of the three. Though they are required to maintain their home and pay property taxes, homeowner’s insurance, and other home-related charges, borrowers aren’t required to make monthly mortgage payments. 

Reverse Mortgage Line of Credit 

Reverse mortgage borrowers can allocate a portion of their available equity to a line of credit they can leave or draw on at any time. Unused line of credit funds do not accrue interest. The available credit can grow over time at the same interest rate charged on the loan balance. This growth occurs at the same rate as the interest plus the annual mortgage insurance premium (MIP) charged to the loan (O.50% of the principal.

Right of Rescission 

The right of a borrower to cancel their mortgage within three business days of closing.  

60% Principal Limit Factor Rule (Aka the 60% Utilization rule)

In all HECM loans, a borrower who selects a single lump sum disbursement cannot exceed (a) 60% of the initial principal limit during the first 12 months of the loan or (b) mandatory obligations plus 10% of the principal limit. 

Under scenario (a), Borrowers with a $100,000 principal limit with no mandatory obligations are allowed a maximum of $60,000 at closing. Under scenario (b), if the borrowers have a $100,000 principal limit, but liens totaling $75,000, the reverse mortgage lender will pay the lien amount. The borrowers will receive $10,000 in cash should they choose. In scenario (b), the borrowers used 85% of the proceeds only because it was used to pay off the existing lien. 

Third-Party Counseling 

The FHA requires all reverse mortgage applicants to attend third-party counseling before applying for all home equity conversion mortgages. An FHA-approved counselor will educate potential reverse mortgage borrowers on the terms of the reverse mortgage. 

Total Annual Loan Cost Rate (TALC) 

The projected annual cost of a reverse mortgage including principal, interest, and fees.