HECM Terminology
Save Already Passed
Principal Limit - =the maximum mortgage amount; equals the maximum claim amount times the
principal limit factor. The maximum amount of money available from the loan at any given time,
including the amount already
borrowed, any set-asides, and any remaining available funds.
Principal Limit Factor - =the percent of the maximum claim amount that equals the principal
limit; determined by the age of the youngest borrower and the expected average mortgage
interest rate
Net Principal Limit - =the maximum mortgage amount minus financed loan costs and set asides
(Principal limit (minus set-asides) minus loan balance = what the borrower can get)
Maximum Claim Amount (MCA) - =whichever is less: the appraised value of the home, or
HUD's national mortgage limit
203-b Limit (no longer used as of 11/2009) - =the maximum amount of home value that could be
used to calculate the principal limit; varied by county, and also equals the limit on HUD's loan
insurance under section 203 (b) of the National Housing Act
HUD's national mortgage limit - =Single national limit which replaced the 203(b) limit for the
purposes of determining Maximum Claim Amounts, beginning November 2009.
Federal Housing Administration (FHA) - =is the part of HUD that administers the HECM
insurance program.
Fannie Mae - =purchases HECM loans, in effect, providing the funds that are advanced to
HECM borrowers.
Home equity - =means the value of a home minus any debt against it.
, Single-purpose reverse mortgages - =are offered by some state and local
government agencies. Each loan can only be used for a single purpose.
Federally-insured reverse mortgages - =are known as Home Equity
Conversion Mortgages (HECMs).
Proprietary reverse mortgages - =are developed, owned, and insured by
private companies. They may be more costly than the federally-insured
HECM.
TENURE - =Borrower receives monthly payments from the lender for as long as
the home is occupied as the principal residence.
TERM - =Borrower receives monthly payments from the lender for a period of
months selected by the borrower.
LINE OF CREDIT - =Borrowers can draw up to a maximum amount at times and in
amounts they choose until the creditline is exhausted. The amount of cash
available grows larger each month until then.
MODIFIED TERM - =Borrower may combine a line of credit with monthly
payments for fixed number of months (term option).
MODIFIED TENURE - =Borrower may combine a line of credit with monthly
payments for as long as one borrower remains in the home (tenure option).
A HECM does not have to be repaid - =until the last surviving borrower
Save Already Passed
Principal Limit - =the maximum mortgage amount; equals the maximum claim amount times the
principal limit factor. The maximum amount of money available from the loan at any given time,
including the amount already
borrowed, any set-asides, and any remaining available funds.
Principal Limit Factor - =the percent of the maximum claim amount that equals the principal
limit; determined by the age of the youngest borrower and the expected average mortgage
interest rate
Net Principal Limit - =the maximum mortgage amount minus financed loan costs and set asides
(Principal limit (minus set-asides) minus loan balance = what the borrower can get)
Maximum Claim Amount (MCA) - =whichever is less: the appraised value of the home, or
HUD's national mortgage limit
203-b Limit (no longer used as of 11/2009) - =the maximum amount of home value that could be
used to calculate the principal limit; varied by county, and also equals the limit on HUD's loan
insurance under section 203 (b) of the National Housing Act
HUD's national mortgage limit - =Single national limit which replaced the 203(b) limit for the
purposes of determining Maximum Claim Amounts, beginning November 2009.
Federal Housing Administration (FHA) - =is the part of HUD that administers the HECM
insurance program.
Fannie Mae - =purchases HECM loans, in effect, providing the funds that are advanced to
HECM borrowers.
Home equity - =means the value of a home minus any debt against it.
, Single-purpose reverse mortgages - =are offered by some state and local
government agencies. Each loan can only be used for a single purpose.
Federally-insured reverse mortgages - =are known as Home Equity
Conversion Mortgages (HECMs).
Proprietary reverse mortgages - =are developed, owned, and insured by
private companies. They may be more costly than the federally-insured
HECM.
TENURE - =Borrower receives monthly payments from the lender for as long as
the home is occupied as the principal residence.
TERM - =Borrower receives monthly payments from the lender for a period of
months selected by the borrower.
LINE OF CREDIT - =Borrowers can draw up to a maximum amount at times and in
amounts they choose until the creditline is exhausted. The amount of cash
available grows larger each month until then.
MODIFIED TERM - =Borrower may combine a line of credit with monthly
payments for fixed number of months (term option).
MODIFIED TENURE - =Borrower may combine a line of credit with monthly
payments for as long as one borrower remains in the home (tenure option).
A HECM does not have to be repaid - =until the last surviving borrower
