Reverse mortgage glossary: key HECM terms explained
Plain-language HECM definitions distinguish borrowing capacity, cash, debt, payment choices, property charges, and repayment terms.
In this article
This reverse mortgage glossary explains the terms that loan officers, processors, and operations teams encounter in loan illustrations and handoffs. It separates borrowing capacity, money received, loan debt, and payment choices so similar-looking fields do not become interchangeable.
These definitions explain vocabulary; they do not determine eligibility, select a loan, or resolve an individual servicing question.
Reverse mortgage glossary: product and origination terms
Home Equity Conversion Mortgages (HECMs) are reverse mortgages insured by the Federal Housing Administration (FHA). Proprietary reverse mortgages are private products outside that insurance program, as the Consumer Financial Protection Bureau explains in its overview of reverse mortgage types.
- Principal limit
- The calculated HECM borrowing limit, based on the youngest borrower or eligible non-borrowing spouse, expected interest rate, and maximum claim amount. It is not the same as cash delivered at closing.
- Maximum claim amount
- A program calculation input based on applicable property value, purchase price where relevant, and the national mortgage limit. It is not a promise that the borrower can receive that amount.
- Principal limit factor (PLF)
- A factor supplied by the U.S. Department of Housing and Urban Development (HUD) for calculating the principal limit. A factor is an input, not a dollar balance.
- Expected rate
- The interest-rate input used to calculate the principal limit at closing.
- Note rate
- The contractual mortgage interest rate used for interest accrual. It can differ from the expected rate on an adjustable-rate HECM.
The federal definitions appear in section 206.3 of 24 CFR Part 206, the HECM insurance regulation. Sections 206.19, 206.27, 206.37, and 206.205 support the payment, repayment, assessment, and property-charge terms below.
For a two-percentage example, see HECM expected rate versus note rate.
Borrowing capacity, cash, and debt
An available credit amount describes what may be borrowed under the loan terms. Cash received records an actual disbursement, while the loan balance records debt. Keep the illustration date attached to each amount.
- Available line of credit
- The unused amount available for permitted draws. It is borrowing capacity, not a bank deposit or investment account.
- Loan balance
- The debt outstanding, including advances and amounts added under the loan terms, such as accrued interest and financed charges.
- Line-of-credit growth
- An increase in unused borrowing capacity under the HECM calculation rules. The increase is not cash paid to the borrower or interest earned on savings.
Consider a fictional illustration with $40,000 of unused credit. A $5,000 draw, ignoring intervening growth and charges, leaves $35,000 unused and adds $5,000 to debt. The draw creates cash received; the unused balance does not. The worked credit-growth example adds the separate effect of growth.
Payment-plan terms
A payment plan describes how proceeds are advanced.
| Term | Meaning |
|---|---|
| Tenure | Equal monthly advances without a selected fixed term, unless the loan is repaid in full or becomes due and payable. |
| Term | Equal monthly advances for a chosen number of months, unless repayment or a due-and-payable event ends them earlier. |
| Line of credit | Draws at times and in amounts chosen by the borrower, within permitted limits. |
| Modified tenure or term | Monthly advances combined with an available line of credit. |
| Single lump sum | The fixed-rate HECM payment option; it does not provide later discretionary draws. |
These are definitions, not a recommendation between plans. The payment-plan handoff explainer covers the questions to carry into a file discussion.
Financial assessment and property charges
Assessment terms describe the review and arrangements for ongoing obligations. They should not be treated as labels for a borrower's character or as a substitute for the documented assessment.
- Financial assessment (FA)
- The evaluation of financial capacity and sustainability, including credit history, cash flow, residual income, and relevant circumstances or compensating factors.
- Life Expectancy Set-Aside (LESA)
- A portion of the principal limit reserved for specified property taxes and insurance. Funding and payment arrangements depend on the assessment and applicable requirements.
- Property charges
- Obligations associated with the property, including taxes, insurance, and applicable association charges. The full category is broader than the charges covered by a LESA.
- Mortgage insurance premium (MIP)
- A charge for FHA mortgage insurance. Initial and ongoing premiums are distinct from homeowners insurance and mortgage interest.
The CFPB's reverse mortgage cost explanation distinguishes upfront from ongoing charges. Financing a charge does not make it free.
Servicing and repayment terms
The following terms identify a status or process.
- Non-borrowing spouse
- A spouse who is not a borrower. An eligible non-borrowing spouse may qualify for a deferral of due-and-payable status after the last borrower's death when the applicable conditions continue to be met.
- Due and payable
- The status in which repayment is required under applicable loan terms and rules. Occupancy or property-charge failures can raise repayment issues; this is not a general definition of “cross-default.”
- Assignment to HUD
- Transfer of an eligible insured mortgage to HUD under the insurance program's assignment conditions. Assignment is not cancellation of the borrower's debt.
Key takeaways
- Identify the product before applying a definition.
- Separate principal limit, available credit, cash received, and debt.
- Read payment plans alongside ongoing obligations and repayment conditions.
- Use the original document and current official source to resolve uncertainty.
Continue with the property-charge handoff guide when responsibilities need clarification.