Reverse mortgage glossary.

A

Adjustable-rate reverse mortgage

A reverse mortgage whose interest rate can change over time based on a published index (commonly the 1-year CMT or SOFR). Adjustable-rate HECMs are the structure that allows monthly payment or line-of-credit options. Compare to fixed-rate.

Annual MIP

The ongoing annual mortgage insurance premium charged on a HECM — currently 0.5% of the loan balance per year, added to the balance over time. Pays for the FHA insurance that makes reverse mortgages non-recourse.

Appraisal

An independent valuation of the property performed by a licensed appraiser, required at the start of every reverse mortgage. The appraised value, along with the FHA lending limit, determines how much you can borrow.

C

Closing costs

The upfront fees required to complete a reverse mortgage. Typically include the origination fee, FHA initial MIP, appraisal, title insurance, recording fees, and a few smaller items. Most can be financed into the loan rather than paid out of pocket.

Counseling (HUD-approved)

A required one-on-one session with an independent counselor approved by HUD, completed before signing any HECM paperwork. Walks through how reverse mortgages work, alternatives to consider, costs involved, and your responsibilities. Typically about 90 minutes and around $125.

E

Eligible non-borrowing spouse

A spouse who is not on the reverse mortgage loan but meets HUD's requirements to remain in the home after the borrowing spouse passes away or moves out permanently. Important to identify correctly before closing — the rules are specific.

Expected interest rate

The rate used to calculate how much you can borrow at closing on a HECM. It's not the rate you'll actually pay over time — that's the note rate — but it's the rate used in the Principal Limit Factor lookup that determines your initial principal limit.

F

FHA (Federal Housing Administration)

The federal agency, part of HUD, that insures HECM reverse mortgages. FHA insurance is what makes a HECM a non-recourse loan and protects both borrowers and lenders.

Fixed-rate reverse mortgage

A reverse mortgage where the interest rate is set at closing and never changes. The trade-off is that fixed-rate HECMs require a single lump-sum disbursement — you can't take monthly payments or a line of credit. Often used to pay off a large existing mortgage.

H

HECM (Home Equity Conversion Mortgage)

The FHA-insured reverse mortgage program — by far the most common reverse mortgage product. Standardized rules, federal consumer protections, mandatory HUD counseling, FHA lending limits. Pronounced "heck-um."

HECM for Purchase (H4P)

A reverse mortgage used to buy a new home, rather than refinance an existing one. Lets a homeowner 62+ buy a different primary residence (often downsizing) using reverse mortgage proceeds plus a down payment — with no required monthly mortgage payments going forward.

HUD (Department of Housing and Urban Development)

The federal agency that oversees the HECM program and the FHA. HUD sets the rules HECMs operate under, including counseling requirements, lending limits, and consumer protections.

I

Initial MIP

The upfront mortgage insurance premium charged at closing on a HECM — currently 2% of the home's value (or the FHA lending limit, whichever is less). Funds the FHA insurance fund that makes the loan non-recourse. Typically rolled into the loan rather than paid out of pocket.

L

Lender margin

The fixed percentage a lender adds to the index rate on an adjustable-rate HECM to set the note rate. Margins vary by lender and can be negotiated. A lower margin means lower interest costs over time but sometimes higher upfront costs.

LESA (Life Expectancy Set-Aside)

Funds carved out of your loan proceeds at closing and earmarked to pay property taxes and homeowner's insurance over the expected life of the loan. Required for borrowers who don't meet HUD's financial assessment standards. Reduces the cash you can access upfront, but protects you from defaulting on taxes or insurance.

Line of credit

A reverse mortgage option where you draw funds as needed rather than receiving a lump sum or monthly payments. The unused portion of the credit line typically grows over time at the same rate as the loan, which can make it a powerful long-term planning tool.

M

Mandatory obligations

Costs and existing debts that must be paid off at closing from your reverse mortgage proceeds — typically the existing mortgage balance, closing costs, and any required set-asides. The HECM caps how much of your initial principal limit you can draw in year one based on these mandatory obligations.

Maturity event

An event that causes the loan to become due and payable. The most common maturity events are: the last borrower passes away, the last borrower moves out for more than 12 consecutive months, the property is sold, or the borrower fails to meet loan obligations (such as paying property taxes).

Maximum claim amount

The lower of your home's appraised value or the FHA lending limit. This is the figure used in the Principal Limit Factor calculation to determine how much you can borrow on a HECM.

MIP (Mortgage Insurance Premium)

The FHA insurance that backs every HECM. Charged in two parts: initial MIP at closing (2% of home value or FHA limit) and annual MIP (0.5% of loan balance per year). Pays for the federal guarantee that makes the loan non-recourse.

N

Non-recourse loan

A loan where the lender's only recourse is the property itself. With a reverse mortgage, this means you (or your heirs) are never required to pay more than the home is worth at the time of repayment, even if the loan balance has grown larger than the home's value.

O

Origination fee

The fee a lender charges for processing the reverse mortgage. For HECMs, this fee is capped by FHA: 2% on the first $200,000 of the home's value plus 1% on the amount above that, up to a $6,000 maximum. Typically rolled into the loan.

P

Principal limit

The total amount you're allowed to borrow under a reverse mortgage at the time of closing. Calculated by multiplying the Maximum Claim Amount by the Principal Limit Factor, which depends on the youngest borrower's age and the expected interest rate.

Principal Limit Factor (PLF)

A percentage published by HUD that determines how much you can borrow relative to your home's value. PLFs are higher for older borrowers and lower when interest rates are higher. As a rough range, PLFs run from about 40% at age 62 to about 75% at age 90+.

Proprietary reverse mortgage (jumbo reverse)

A reverse mortgage offered by a private lender, not backed by FHA, often designed for higher-value homes that exceed the HECM lending limit. Some programs are available starting at age 55 in certain states. Terms, costs, and consumer protections vary by lender — there's no single federal standard the way there is for HECMs.

R

Reverse mortgage

A loan available to homeowners 62 and older that lets you convert part of your home's equity into cash, monthly payments, a line of credit, or some combination — without making required monthly mortgage payments. The loan is generally repaid when you sell the home, move out permanently, or pass away.

Right of rescission

Your federal right to cancel a reverse mortgage within three business days of closing, with no cost or penalty. After that window closes, the loan is final — though you can always pay it off later by selling, refinancing, or voluntary paydown.

S

Second-lien reverse mortgage (reverse second mortgage)

A proprietary reverse mortgage that sits behind your existing mortgage instead of paying it off. You keep your current mortgage and its interest rate, and you keep making its payments, but there's no monthly payment on the reverse second. Not FHA-insured, and available only in some states.

Servicing fee

A monthly fee a lender or servicer may charge to manage your reverse mortgage account — sending statements, processing draws, monitoring property tax and insurance payments. Capped at $30/month for most HECMs. Many lenders now waive this fee.

Single-purpose reverse mortgage

A smaller reverse mortgage offered by some state and local governments and nonprofit organizations, restricted to a specific use — typically property tax payment or home repairs. Generally the lowest-cost reverse mortgage option, but availability and uses are limited.

T

Tenure payment

A reverse mortgage payout option where you receive equal monthly payments for as long as at least one borrower occupies the home as a primary residence. The amount is set at closing and continues for life (assuming you stay in the home and meet loan obligations).

Term payment

A reverse mortgage payout option where you receive equal monthly payments for a set period of years (rather than for life). Provides higher monthly payments than a tenure option, but the payments stop at the end of the term — though the loan balance does not become due at that point.