Glossary

Conventional Conforming Loan Limits:

This is the limit on how much you can borrow for your home. The limit is set by the Federal Housing Finance Agency (FHFA), and it is updated every year. The baseline amount for 2021 is $548,250, but this amount can increase in higher-value areas.

Fannie Mae (FNMA) and Freddie Mac (FHLMC):

These are two large agencies, created by Congress, that purchase the majority of residential mortgages from banks and lenders. They allow the mortgage to stay liquid, stable, and affordable.

Fiduciary Responsibility:

A fiduciary is a person or organization that acts on behalf of another person, putting their clients’ interests ahead of their own. A fiduciary is legally bound to act in their clients’ best interests. While a fiduciary most often looks after another’s finances, they can also be responsible for the overall well-being of their clients.

H4P:

An abbreviation for the HECM for Purchase program

HECM:

This is the only reverse mortgage that is insured by the U.S. Federal Government. If you meet the eligibility requirements required for a reverse mortgage, you can utilize this program to secure the appropriate loan.

Home Equity:

Home equity is the difference between the fair market value of one’s home and the outstanding balance of all liens and on the property. As one pays off their mortgage, the home equity increases.

Initial Principal Limit:

This is the amount a borrower can receive on their reverse mortgage. The factors that determine the limit include the borrower’s age at the time of application, the loan’s interest rate, and the professionally appraised value of their home.

Interest Rate:

This is the amount of interest due per period (depending on the type of mortgage). It is expressed as a percentage and is determined by the amount loaned to the borrower, the principal sum of the loan, the national interest rate, and the duration of the mortgage.

Jumbo Mortgage:

A jumbo mortgage is a mortgage loan that may have high credit quality but is in an amount above conventional conforming loan limits. The standard is set by Fannie Mae and Freddie Mac, and it establishes the limit on the maximum value of any individual mortgage that they will then purchase from a lender. When they do not cover the full loan amount, it is known as a jumbo mortgage.

LIBOR (London Interbank Offered Rate):

LIBOR is a globally accepted key benchmark interest rate that indicates borrowing costs between banks. The rate is calculated and will continue to be published each day by the Intercontinental Exchange.

Life Expectancy Set Aside (LESA):

This is a type of escrow account that is set up by setting aside a portion of principal limit that is preserved for the sole purpose of paying property charges. The exact amount that is set aside varies from borrower to borrower because it is based on age and the cost of the property charges.

Line of Credit:

This is credit source extended to a government, business, or individual by a bank or other institution. It is essentially a source of funds that can readily be withdrawn from at the borrower’s discretion. Interest is paid only on the money that is actually taken out.

Maximum Claim Amount (MCA):

The MCA is used to calculate proceeds and is equal to either the home’s appraised value or the Federal Housing Administration (FHA) lending limit — whichever is less.

Mortgage Broker:

This is an intermediary who brings borrowers and lenders together, but who does not use their own funds to originate mortgages. A mortgage broker helps borrowers connect with lenders and seeks out the best fit for the borrower’s needs.

Mortgage Insurance Premium (MIP):

The MIP is put in place by the FHA to protect you by making sure that the amount required for repayment of the loan will never exceed the value of the home once payment becomes due.

Mortgage Lender:

A mortgage lender is a mortgage bank or financial institution that offers and underwrites home loans. They have specific borrowing guidelines to verify your creditworthiness and ability to pay back a loan. They set all the terms, interest rate, repayment schedule, and other parts of your mortgage.

Mortgage Loan:

A mortgage is used either by buyers of property to raise funds to purchase it or by existing property owners to raise funds for any purpose, while putting a lien on their own property being mortgaged.

Mutual Mortgage Insurance Fund (MMIF):

The Mutual Mortgage Insurance Fund is a federal fund that acts as the insurer of mortgages that are guaranteed by the Federal Housing Administration.

Net Principal Limit:

A net principal limit is the amount of money a reverse mortgage borrower can receive from a loan after factoring for its closing costs.

Non-Borrowing Spouse:

This is the spouse of the borrower — at the time of closing —who is not on the HECM loan.

Eligible Non-Borrowing Spouse:

This is a Non-Borrowing Spouse who meets the Qualifying Attributes requirements established by the Secretary of HUD, or authorized representatives, that he or she must satisfy to be eligible for deferral of the due and payable status.

Ineligible Non-Borrowing Spouse:

This is a Non-Borrowing Spouse who does not meet the Qualifying Attributes requirements.

Origination Fee:

This is a payment associated with the establishment of an account with a bank, broker, or other institution providing services that handle the processing of a loan.

Proceeds:

This is how much money one makes from the sale of an item or home.

Proprietary Reverse Mortgage:

A proprietary reverse mortgage is a loan that lets older homeowners retrieve the equity in their homes through a private company. These loans are not federally insured, and they are not bound by traditional lending limits.

Secured Overnight Financing Rate (SOFR):

SOFR is a benchmark interest rate for dollar-denominated derivatives and loans that is slowly replacing the London interbank offered rate (LIBOR). It is is based on transactions in the Treasury repurchase market, where investors offer banks overnight loans backed by their bond assets.

Contact Us If You Have Questions About Any Of These Terms Or Others

If we can do anything to help you better understand mortgages and reverse mortgages, please do not hesitate to contact Family Home Loan Texas by calling 1-800-990-LEND (5363).