Reference

Reverse Mortgage Glossary
Every HECM Term, Explained in Plain English

The reverse mortgage industry loves jargon. This glossary translates it into language you can actually understand.

A

Adjustable-Rate HECM: A HECM with a variable interest rate that changes over time based on market indices. Most HECM borrowers choose adjustable-rate because it offers all disbursement options including the line of credit. Learn more →
Appraisal: An independent assessment of a home's market value conducted by an FHA-approved appraiser. The appraisal determines the maximum amount available through a HECM (subject to the FHA lending limit). Also identifies property condition issues that must be addressed. Learn more →

B

Borrower: The homeowner(s) who take out a HECM. All borrowers must be at least 62 years old, live in the home as their primary residence, and complete HUD-approved counseling. Learn more →

C

Closing Costs: Fees paid at the settlement of a HECM, including the origination fee, appraisal, title insurance, recording fees, and upfront mortgage insurance premium. Most closing costs can be financed into the HECM rather than paid out of pocket. Learn more →
Counseling (HUD): Mandatory independent counseling session with a HUD-approved agency before a HECM can be issued. The counselor explains how the loan works, the costs involved, alternatives to a reverse mortgage, and the borrower's obligations. Typically costs $125 and can be done by phone. Learn more →

D

Disbursement Options: The ways a borrower can receive HECM funds: lump sum (fixed rate only), line of credit, monthly tenure payments (for life), monthly term payments (set period), or a combination. The line of credit option includes a unique growth feature. Learn more →
Due and Payable: The conditions under which a HECM loan balance must be repaid. The loan becomes due when the last borrower (or eligible non-borrowing spouse) permanently leaves the home, the home is sold, or the borrower fails to meet obligations such as property taxes and insurance.

E

Eligible Non-Borrowing Spouse (NBS): A spouse under age 62 who is not on the HECM loan but can remain in the home after the borrowing spouse dies or moves to a care facility. NBS protections were strengthened in 2014-2015 but the younger spouse's age reduces the available principal limit. Learn more →
Expected Interest Rate: The rate used to calculate the Principal Limit Factor (how much you can borrow). It's based on the 10-year CMT rate plus the lender's margin. A higher expected rate means a lower borrowing amount. This is different from the actual rate you're charged on drawn funds.
Equity: The difference between your home's market value and any outstanding mortgage debt. A HECM allows you to convert a portion of your equity into usable funds without selling the home.

F

FHA (Federal Housing Administration): The government agency under HUD that insures HECM loans. FHA insurance protects borrowers by guaranteeing they'll receive their loan proceeds even if the lender goes out of business, and ensures heirs never owe more than the home's value. Learn more →
FHA Lending Limit: The maximum home value used to calculate HECM proceeds, regardless of actual home value. The 2026 limit is $1,249,125. Homes worth more than this cap can still get a HECM, but proceeds are calculated on the capped amount. Learn more →
Financial Assessment: A review of the borrower's income, expenses, and credit history to ensure they can meet HECM obligations (property taxes, insurance, maintenance). May result in a Life Expectancy Set-Aside (LESA) if concerns are identified. Learn more →
Fixed-Rate HECM: A HECM with an interest rate that never changes. Available only with a lump-sum disbursement — you cannot get a line of credit or monthly payments with a fixed-rate HECM.

G

Growth Rate (Line of Credit): The rate at which the unused portion of a HECM line of credit increases over time. Equal to the effective rate (note rate + 0.5% annual MIP). This growth is a unique feature — the available credit line gets larger even if your home's value stays the same or decreases. Learn more →

H

HECM (Home Equity Conversion Mortgage): The only reverse mortgage insured by the federal government through FHA. Available to homeowners 62 and older. The HECM allows borrowers to convert home equity into cash without monthly mortgage payments. It's the most common type of reverse mortgage, representing over 95% of the market. Learn more →
HECM for Purchase: A specialized HECM program that allows borrowers 62+ to purchase a new primary residence using a combination of a down payment and reverse mortgage financing. The buyer moves in with no monthly mortgage payment. Learn more →
HUD (Department of Housing and Urban Development): The federal department that oversees the FHA and regulates the HECM program. HUD sets the rules, approves counseling agencies, and establishes borrower protections. Learn more →

L

LESA (Life Expectancy Set-Aside): An amount set aside from HECM proceeds to pay future property taxes and homeowner's insurance. Required when the financial assessment identifies concerns about the borrower's ability to make these payments. Protects the borrower from default.
Line of Credit: A HECM disbursement option where funds are available to draw as needed. The unused portion grows at the effective interest rate. Unlike a HELOC, a HECM line of credit cannot be frozen, reduced, or cancelled by the lender. Learn more →
Lump Sum: A HECM disbursement option where the borrower takes all available proceeds at once. Only available with a fixed-rate HECM. Subject to an initial draw limit of 60% in the first year (unless existing mortgage payoff requires more).

M

Maturity Event: An event that triggers the HECM loan becoming due and payable. This includes the death of the last borrower (or eligible NBS), permanent move from the home, sale of the property, or failure to maintain obligations.
MIP (Mortgage Insurance Premium): Insurance premiums paid to FHA that protect both the borrower and lender. Includes an upfront premium (2% of the appraised value at closing) and an annual premium (0.5% of the outstanding loan balance, accrued monthly). MIP ensures the non-recourse guarantee. Learn more →

N

Non-Recourse Loan: A loan where the borrower (or their estate) can never owe more than the home's fair market value at the time of repayment, regardless of the outstanding loan balance. All HECMs are non-recourse, meaning heirs cannot inherit the debt. Learn more →

O

Origination Fee: The fee charged by the lender for processing the HECM. Capped by FHA: the greater of $2,500 or 2% of the first $200,000 of home value + 1% above $200,000, with a maximum of $6,000. Some lenders reduce or waive this fee. Learn more →

P

PLF (Principal Limit Factor): A percentage, based on the borrower's age (or youngest borrower/NBS age) and the expected interest rate, that determines how much of the home's value can be accessed. Higher age and lower rates yield a higher PLF. Ranges roughly from 37% (age 62) to 75% (age 90+) at current rates. Learn more →
Primary Residence: The home where the borrower lives for the majority of the year. HECMs are only available on primary residences — not vacation homes, rental properties, or investment properties. The borrower must certify occupancy annually. Learn more →
Proprietary Reverse Mortgage: A privately insured reverse mortgage not backed by FHA. Sometimes called a "jumbo" reverse mortgage because it may allow higher loan amounts than the FHA lending limit. Not subject to HECM regulations and protections.

R

Reverse Mortgage: A loan available to homeowners 62+ that converts home equity into cash without requiring monthly payments. The loan balance grows over time and is repaid when the borrower leaves the home. HECM is the most common and only federally insured type. Learn more →
Right of Rescission: The borrower's right to cancel a HECM within three business days after closing, for any reason and without penalty. This is a federal consumer protection that applies to all HECMs.

S

Servicing Fee: A monthly fee charged by the loan servicer for managing the HECM account, sending statements, and disbursing funds. Many modern HECMs include servicing in the interest rate rather than charging a separate fee.
Set-Aside: An amount reserved from HECM proceeds for specific purposes. The most common are the LESA (for taxes/insurance), servicing fee set-aside, and repair set-aside (for required property repairs identified during appraisal).

T

Tenure Payments: A HECM disbursement option providing fixed monthly payments for as long as the borrower lives in the home. Even if the total payments exceed the loan amount or home value, payments continue — guaranteed by FHA insurance.
Term Payments: A HECM disbursement option providing fixed monthly payments for a specific number of years chosen by the borrower. Monthly amounts are higher than tenure payments because they cover a defined period.

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