If you’re researching a reverse mortgage, you’ve probably encountered unfamiliar words and industry jargon.
This reverse mortgage glossary was created to help Bay Area homeowners understand the most common reverse mortgage terms in plain English.
Whether you’re exploring an FHA reverse mortgage (HECM), a private reverse mortgage, or a jumbo reverse mortgage, understanding these terms can help you make informed decisions about your retirement and home equity.
A
Appraisal
An appraisal is a professional estimate of your home’s current market value.
The value of your home plays a major role in determining how much equity may be available through a reverse mortgage.
Simple Definition: An estimate of what your home is worth today.
B
Borrower
The homeowner obtaining the reverse mortgage.
Unlike a traditional mortgage, reverse mortgage borrowers are generally not required to make monthly principal and interest payments as long as they continue to meet loan obligations.
Simple Definition: The homeowner receiving the reverse mortgage.
C
Closing Costs
The expenses associated with obtaining a reverse mortgage.
These may include:
- Appraisal fees
- Escrow fees
- Title fees
- Recording fees
- Lender fees
Simple Definition: The costs required to complete the loan.
Counseling
HUD-approved counseling is required before obtaining an FHA-insured reverse mortgage.
The purpose is to help homeowners understand how the loan works and determine whether it fits their goals.
Simple Definition: A required educational session before obtaining a HECM reverse mortgage.
H
HECM (Home Equity Conversion Mortgage)
HECM stands for Home Equity Conversion Mortgage.
This is the official name of the FHA reverse mortgage program and remains the most common reverse mortgage available in the United States.
Simple Definition: The government-backed reverse mortgage program.
Home Equity
Home equity is the difference between your home’s value and any mortgage balance you still owe.
Example:
Home Value: $1,200,000
Mortgage Balance: $200,000
Home Equity: $1,000,000
Simple Definition: The portion of your home you actually own.
HUD
HUD stands for the Department of Housing and Urban Development.
HUD oversees FHA reverse mortgage guidelines and counseling requirements.
Simple Definition: The federal agency that oversees FHA reverse mortgages.
J
Jumbo Reverse Mortgage
A jumbo reverse mortgage is a private reverse mortgage designed for higher-value homes.
These loans often allow homeowners to access more equity than an FHA reverse mortgage.
This can be particularly important for Bay Area homeowners whose properties exceed FHA lending limits.
Simple Definition: A reverse mortgage designed for higher-value homes.
L
Line of Credit
A reverse mortgage line of credit allows homeowners to access funds when needed rather than taking all proceeds upfront.
One unique feature is that unused available credit may grow over time.
Simple Definition: Money available to use when you need it.
Lump Sum
A lump sum option provides reverse mortgage proceeds in one payment at closing.
Some homeowners use a lump sum to eliminate an existing mortgage or pay off debt.
Simple Definition: Receiving all available funds at one time.
M
Maximum Claim Amount (MCA)
The Maximum Claim Amount is one of the most misunderstood reverse mortgage terms.
For an FHA reverse mortgage, the Maximum Claim Amount is the value used to calculate your available loan proceeds.
The Maximum Claim Amount is generally the lesser of:
- Your home’s appraised value
- FHA’s maximum lending limit
- The home’s purchase price (for reverse mortgage purchases)
For homeowners with higher-value Bay Area properties, this is one reason a jumbo reverse mortgage or private reverse mortgage may be worth exploring.
Simple Definition: The maximum home value FHA uses when calculating a reverse mortgage.
Mortgage Insurance Premium (MIP)
Mortgage Insurance Premium, commonly called MIP, is required on FHA reverse mortgages.
The insurance protects both borrowers and lenders and helps guarantee the program’s long-term stability.
Private reverse mortgages generally do not require FHA mortgage insurance.
Simple Definition: Insurance associated with FHA reverse mortgages.
N
Non-Borrowing Spouse
A spouse who lives in the home but is not listed as a borrower on the reverse mortgage.
Certain protections may apply depending on the loan program and circumstances.
Simple Definition: A spouse living in the home who is not on the loan.
P
Principal Limit
The principal limit is the maximum amount available through a reverse mortgage.
The amount is determined by:
- Borrower age
- Home value
- Interest rates
- Program guidelines
Many homeowners mistakenly assume the principal limit is the same as their home equity.
It is not.
Simple Definition: The maximum amount available through the reverse mortgage.
Private Reverse Mortgage
A reverse mortgage offered by a private lender rather than insured by FHA.
Private reverse mortgages are often used by homeowners with higher-value homes or unique financial situations.
Simple Definition: A non-government reverse mortgage.
Proprietary Reverse Mortgage
Another term for a private reverse mortgage.
The terms are often used interchangeably.
Simple Definition: A reverse mortgage offered by a private lender.
R
Reverse Mortgage
A reverse mortgage allows eligible homeowners to convert a portion of their home equity into cash while continuing to live in their home.
Unlike a traditional mortgage, no monthly principal and interest payment is generally required.
Simple Definition: A way to access home equity without selling your home.
Reverse Mortgage for Purchase (H4P)
A reverse mortgage for purchase allows eligible borrowers to buy a new home using a reverse mortgage.
This can significantly reduce or eliminate monthly mortgage payments.
Simple Definition: Buying a home using a reverse mortgage.
S
Servicing
Servicing refers to the ongoing management of your reverse mortgage after closing.
The loan servicer handles statements, account maintenance, and customer support.
Simple Definition: The company that manages your loan after closing.
Set Aside
A set aside is money reserved from reverse mortgage proceeds to pay future property taxes, homeowners insurance, or required property expenses.
Simple Definition: Funds reserved for future housing expenses.
T
Tenure Payment
A payment option that provides monthly payments for as long as at least one borrower continues to live in the home and meets loan requirements.
Simple Definition: Monthly payments that can continue for life.
Term Payment
A payment option providing monthly payments for a specific number of years.
Simple Definition: Monthly payments for a fixed period of time.
U
Unpaid Principal Balance
The amount currently owed on the reverse mortgage.
Because borrowers are not typically making monthly mortgage payments, the balance generally increases over time.
Simple Definition: What is currently owed on the loan.
W
When Does a Reverse Mortgage Become Due?
A reverse mortgage typically becomes due when:
- The home is sold
- The last borrower permanently leaves the property
- The last borrower passes away
- Loan obligations are not met
Simple Definition: The events that trigger repayment of the loan.
Will My Heirs Inherit My Home?
Yes.
When a reverse mortgage becomes due, heirs generally have options that may include:
- Selling the property
- Refinancing the balance
- Paying off the loan and keeping the home
Simple Definition: Your family still has choices regarding the home.
The Most Important Reverse Mortgage Term
Home Equity
Everything in a reverse mortgage ultimately comes back to one concept: home equity.
For many Bay Area homeowners, home equity represents one of their largest financial assets.
A reverse mortgage simply provides another way to access and use that equity as part of a retirement strategy.
Whether you’re considering an FHA reverse mortgage, private reverse mortgage, or jumbo reverse mortgage, understanding your home equity is often the first step toward making an informed decision.
Questions About Reverse Mortgages?
If you have questions about reverse mortgage terms, FHA reverse mortgages, private reverse mortgages, or jumbo reverse mortgages, contact Jason Wheeler for a personalized consultation.
Serving homeowners throughout Pleasant Hill, Walnut Creek, Concord, Martinez, Lafayette, Danville, Alamo, San Ramon, Contra Costa County, Alameda County, and the greater San Francisco Bay Area.