Reverse mortgage glossary

Origination & underwriting

HECM (Home Equity Conversion Mortgage)

The FHA-insured reverse mortgage program, the most common reverse mortgage product in the U.S.

Principal Limit

The maximum amount a borrower can access under a HECM, calculated from the borrower's age, the expected interest rate, and the property's appraised value (up to the FHA lending limit).

Principal Limit Factor (PLF)

A HUD-published table value used together with property value to calculate the principal limit; PLF tables are updated periodically and every calculation should record which table version was used.

Expected Rate

The interest rate used specifically to calculate the principal limit, which may differ from the borrower's initial note rate depending on the payment plan selected.

Financial Assessment (FA)

HUD's required evaluation of a borrower's residual income and credit history to determine ability and willingness to meet ongoing property charge obligations.

LESA (Life Expectancy Set-Aside)

Funds set aside from loan proceeds, determined through financial assessment, to cover future property taxes and insurance when a borrower's financial profile indicates elevated risk of default on those obligations.

Non-Borrowing Spouse

A borrower's spouse who is not listed on the loan but who may qualify for continued occupancy protections under HUD guidelines if specific eligibility criteria are met and documented.

Payment plans

Tenure Plan

Equal monthly payments for as long as the borrower occupies the property as a principal residence.

Term Plan

Equal monthly payments for a fixed number of months selected by the borrower.

Line of Credit

Proceeds available to draw as needed, up to the available limit, rather than as scheduled payments.

Modified Plan

A combination of a line of credit with either tenure or term payments.

Mortgage insurance

Initial MIP (Mortgage Insurance Premium)

An upfront premium paid at closing as part of FHA insurance on a HECM.

Annual MIP

An ongoing premium that accrues against the loan balance over the life of the HECM.

Closing & servicing

FHA Case Number

The identifier assigned by FHA Connection to a HECM case, required before certain origination steps can proceed.

Right of Rescission

A borrower's right, on a HECM refinance, to cancel the transaction within a set period after closing.

Servicing Fee Set-Aside

Funds reserved from proceeds to cover future loan servicing fees, where applicable to the loan's origination date and terms.

Assignment (to HUD)

The process by which a servicer transfers a HECM to HUD once the outstanding balance reaches a defined percentage of the maximum claim amount, under FHA insurance provisions.

Cross-Default

A condition — such as failure to pay property taxes or insurance, or failure to occupy the property as a principal residence — that can make a HECM due and payable.

Other reverse mortgage products

Proprietary Reverse Mortgage

A reverse mortgage product not insured by FHA, typically originated by private lenders with their own underwriting guidelines and PLF tables, often used for higher-value properties above the FHA lending limit.