Reverse mortgage glossary (2026): every HECM term defined
Last updated: · Reviewed by Simply Approved Mortgages (NMLS #2620881)
Plain-English definitions for every reverse mortgage term you'll see on a Loan Estimate, Closing Disclosure, HUD counseling certificate, or HECM rate sheet — written for homeowners 62 and older, not for loan officers.
Get your Reverse Mortgage Estimate Summary.
Complete the short estimate form and we send back a full HECM summary: your estimated principal limit, complimentary home value estimate, payoff of any existing mortgage, and estimated proceeds available to you.
- Complimentary home value estimate
- Estimated principal limit for your age
- Existing mortgage payoff included
- Lump sum, line of credit, or monthly options
Illustration only, generated from the information you enter. Not a loan estimate, pre-qualification, commitment to lend, or approval. Subject to HUD counseling, appraisal, credit and income review, and final lender approval. You remain responsible for property taxes, insurance, and home maintenance.
Estimate summary
- Home value estimate
- $412,000
- Youngest borrower age
- 72
- Estimated principal limit
- $219,400
- Existing mortgage payoff
- $68,000
- Estimated proceeds available
- $151,400
Simply Approved Mortgages • NMLS #2620881 • Equal Housing Opportunity
A
- Adjustable-Rate HECM
- A Home Equity Conversion Mortgage with an interest rate that resets per the underlying index (typically the 1-year CMT). The only HECM that offers a line of credit, monthly payments, or a combination.
- Annual MIP
- 0.5% annual mortgage insurance premium added to the outstanding HECM balance. Funds the FHA non-recourse guarantee.
- Anti-Churning Disclosure
- Federal HUD form documenting the benefit calculation on a HECM-to-HECM refinance so the borrower can confirm the refinance delivers meaningful new value (commonly benchmarked as the Principal Limit increase exceeding roughly 5× total closing costs; lenders may add overlays).
- Appraisal (FHA)
- Property appraisal completed by an FHA-approved appraiser. Establishes the home value used in the Maximum Claim Amount calculation.
- Anti-Churning Benefit Test
- HUD's consumer-protection standard for HECM-to-HECM refinances: the transaction must deliver a meaningful new benefit to the borrower. A common benchmark is that the increase in the Principal Limit meaningfully exceeds total closing costs (often described as roughly 5×). Individual lenders may impose additional overlays.
B
- Borrower
- Anyone on title to the home who is age 62 or older at closing and signs the HECM note. The youngest borrower's age drives the Principal Limit Factor lookup.
C
- Closing Disclosure (CD)
- Federal RESPA/TRID-required form delivered at least 3 business days before HECM closing, itemizing every fee and disbursement.
- Constant Maturity Treasury (CMT)
- U.S. Treasury yield index published by the Federal Reserve. The 1-year CMT is the most common HECM ARM index.
- Counseling (HUD-Approved)
- Mandatory independent counseling session with a HUD-approved agency, required before a lender can take a HECM application.
D
- Deed
- Legal document that conveys real estate ownership. With a HECM, the deed stays in the borrower's name — the lender records a lien, not a deed transfer.
- Deferral Period
- The time after a HECM borrower's death during which an Eligible Non-Borrowing Spouse can remain in the home with the loan in deferment.
E
- Eligible Non-Borrowing Spouse (ENBS)
- A spouse under age 62 at HECM closing, properly identified at origination, who is HUD-protected to remain in the home for life after the borrowing spouse's death.
- Expected Rate
- Long-term rate HUD uses ONCE — at case-number assignment — to look up the Principal Limit Factor. Locks for the life of the loan for PLF purposes.
F
- FHA (Federal Housing Administration)
- Division of HUD that insures the HECM program. FHA insurance funds the non-recourse guarantee.
- Financial Assessment
- Lender review confirming the borrower has the residual income and credit history to keep paying property taxes, insurance, and HOA dues.
- Fixed-Rate HECM
- A Home Equity Conversion Mortgage with a fixed interest rate for the life of the loan. Disburses as a single lump sum at closing — no line of credit available.
- Foreclosure (HECM)
- Possible only for specific defaults: unpaid property taxes/insurance/HOA, not maintaining the property, or no longer occupying the home as principal residence for 12+ months.
G
- Growing Line of Credit
- Unique HECM feature: the unused portion of an adjustable-rate HECM line of credit grows monthly at the note rate plus 0.5% annual MIP.
H
- HECM
- Home Equity Conversion Mortgage — the FHA-insured reverse mortgage program created by HUD in 1989. The vast majority of all U.S. reverse mortgages.
- HECM for Purchase (H4P)
- HECM variation that finances the purchase of a new primary residence using a large down payment plus HECM proceeds — no required monthly principal and interest payment.
- HECM Refinance
- Replacing an existing HECM with a new HECM. Must satisfy HUD's anti-churning benefit test (and any lender overlays), evidenced by the HUD Anti-Churning Disclosure.
I
- Index
- External benchmark interest rate (1-year CMT or certain SOFR rates) used to set the note rate on adjustable HECMs. Note rate = index + lender's margin.
- Initial MIP
- 2% upfront mortgage insurance premium charged on the Maximum Claim Amount at HECM closing.
- Initial Note Rate
- The actual interest rate accruing on your outstanding HECM balance right now. Adjusts per index for ARM HECMs; fixed for fixed-rate HECMs.
J
- Jumbo Reverse Mortgage
- Proprietary (non-HUD-insured) reverse mortgage product for homes valued above the HECM lending limit. Not FHA-insured; rules vary by lender.
L
- Life Expectancy Set-Aside (LESA)
- Required reserve carved out of HECM proceeds at closing to pay future property taxes and insurance, if the Financial Assessment indicates risk of default.
- Lifetime Cap
- Maximum interest rate the ARM HECM note rate can ever reach — capped 5% above the initial rate by HUD rule.
- Line of Credit (LOC)
- Unused portion of an adjustable-rate HECM Principal Limit available to draw on demand. Grows monthly at the note rate + 0.5% annual MIP.
- Loan Estimate (LE)
- Federal RESPA/TRID-required form delivered within 3 business days of HECM application, showing estimated rate, fees, and closing costs.
- Lump Sum
- Single full disbursement of available HECM proceeds at closing. The only payout option on fixed-rate HECMs.
M
- Margin
- Lender's spread above the index on an adjustable HECM. Combined with the index = note rate. Typically 1.5%–3%.
- Maximum Claim Amount (MCA)
- The lower of the home's appraised value or the HUD lending limit (2026: $1,249,125). MCA is the cap on FHA insurance coverage.
- Mortgage Insurance Premium (MIP)
- FHA insurance paid by HECM borrowers. 2% upfront on MCA at closing plus 0.5% annual on the outstanding balance.
- Mortgagee
- The HECM lender (HUD's term). The party that holds the mortgage lien.
- Mortgagor
- The HECM borrower (HUD's term). The homeowner with the lien on their property.
N
- NMLS
- Nationwide Multistate Licensing System. Every loan officer and lender must be NMLS-registered. Verify at nmlsconsumeraccess.org.
- Non-Borrowing Spouse (NBS)
- A spouse not listed as a borrower on the HECM. Eligible NBS receive HUD's lifetime-occupancy protections; Ineligible NBS do not.
- Non-Recourse
- Federal HUD guarantee that the borrower and heirs will never owe more than the home's value at the time the loan is repaid. The FHA covers any shortfall.
O
- Origination Fee
- Fee charged by the lender for processing the HECM. HUD-capped at $6,000 (lower for small loans).
P
- Payoff
- Total amount required to satisfy the HECM in full — current loan balance plus any accrued interest, MIP, and servicing fees.
- Principal Limit (PL)
- The maximum amount the borrower can borrow on the HECM, computed at origination as MCA × Principal Limit Factor.
- Principal Limit Factor (PLF)
- HUD-published percentage that, when multiplied by the MCA, yields the Principal Limit. Based on the youngest borrower's age and the expected rate.
- Proceeds
- The money the borrower receives or has access to from the HECM. Net of financed closing costs, MIP, and any mandatory obligations like mortgage payoff.
R
- Reverse Mortgage
- A home loan available to U.S. homeowners 62+ that converts a portion of home equity into loan proceeds. The vast majority are FHA-insured HECMs.
- Right of Rescission
- Federal 3-business-day window after HECM closing during which the borrower can cancel the loan for any reason with no penalty.
S
- Servicer
- Company that manages the HECM after closing — issues statements, processes draws, collects MIP, handles annual occupancy certifications. May or may not be the original lender.
- SOFR
- Secured Overnight Financing Rate. Replaced LIBOR as a permitted HECM ARM index.
T
- Tenure Payment
- HECM payout option that converts the Principal Limit into equal monthly payments for as long as the borrower lives in the home as principal residence.
- Term Payment
- HECM payout option that converts the Principal Limit into equal monthly payments for a fixed number of years chosen by the borrower.
U
- Underwriting
- Lender's process of verifying eligibility, financial assessment, appraisal, title, and HUD-required documentation before clearing the HECM to close.
Your numbers plus the 2026 Reverse Mortgage Guide.
Request your estimate and we include the 21-page plain-English guide: who qualifies at 62+, what a HECM costs, payout options, ongoing obligations, and the questions to ask before you sign.
- 21-page guide, no jargon
- HUD/FHA program rules explained
- Costs and fees broken down
- Questions to ask any loan officer
Illustration only, generated from the information you enter. Not a loan estimate, pre-qualification, commitment to lend, or approval. Subject to HUD counseling, appraisal, credit and income review, and final lender approval. You remain responsible for property taxes, insurance, and home maintenance.
Estimate summary
- Home value estimate
- $412,000
- Youngest borrower age
- 72
- Estimated principal limit
- $219,400
- Existing mortgage payoff
- $68,000
- Estimated proceeds available
- $151,400
Simply Approved Mortgages • NMLS #2620881 • Equal Housing Opportunity
Reverse mortgage glossary: FAQ
- What does HECM stand for?
- Home Equity Conversion Mortgage — the FHA-insured reverse mortgage program administered by HUD, used by the vast majority of U.S. reverse mortgage borrowers.
- What is the difference between Principal Limit and Maximum Claim Amount?
- The Maximum Claim Amount (MCA) is the lower of your home's appraised value or the HUD lending limit. The Principal Limit is the maximum you can borrow, calculated as MCA multiplied by the Principal Limit Factor (PLF).
- What is MIP?
- Mortgage Insurance Premium — FHA insurance on a HECM, consisting of a 2% upfront premium on the MCA plus a 0.5% annual premium on the outstanding balance.
- What is a LESA?
- A Life Expectancy Set-Aside — funds reserved from HECM proceeds at closing to pay future property taxes and insurance, required when the Financial Assessment indicates a risk of default.
- Where can I see these terms used in context?
- See our full guide on what a reverse mortgage is, the HECM program page, and the reverse mortgage calculator linked below.
Keep learning about reverse mortgages
- What is a reverse mortgage
Plain-English overview.
- HECM program details
The FHA-insured reverse mortgage.
- Reverse mortgage calculator
Estimate your Principal Limit.
- Reverse mortgage rates
Initial rate vs expected rate.
- Costs and fees
Origination, MIP, third-party.
- Reverse mortgage FAQ
Heirs, taxes, Medicare, spouses.
See your reverse mortgage numbers on paper.
A licensed Simply Approved Mortgages loan officer reviews your estimate with you — line by line — so you can compare a HECM against a HELOC, a refinance, or staying put.
- Side-by-side payout comparison
- Upfront and ongoing cost estimate
- HUD counseling walked through
- Answers to your heirs questions
Illustration only, generated from the information you enter. Not a loan estimate, pre-qualification, commitment to lend, or approval. Subject to HUD counseling, appraisal, credit and income review, and final lender approval. You remain responsible for property taxes, insurance, and home maintenance.
Estimate summary
- Home value estimate
- $412,000
- Youngest borrower age
- 72
- Estimated principal limit
- $219,400
- Existing mortgage payoff
- $68,000
- Estimated proceeds available
- $151,400
Simply Approved Mortgages • NMLS #2620881 • Equal Housing Opportunity
Estimate what you could qualify for in about a minute
Enter a few details about your age, home, and goals. We'll show you an estimated HECM benefit, a complimentary home value estimate, and connect you with a Simply Approved Mortgages reverse mortgage loan officer.
Related reverse mortgage articles, rate updates & HECM guides
New reverse mortgage articles are publishing soon. In the meantime, browse upcoming categories:
Documents required for a reverse mortgage
When you apply for a HECM reverse mortgage, your lender will request documents that verify your identity, property ownership, income, and assets. Gathering these in advance can speed up your estimate and application.
- Government-issued photo ID
Current driver’s license, passport, or state-issued ID.
- Social Security number verification
Social Security card or award letter showing your SSN.
- Current mortgage statement
Most recent statement if refinancing; purchase agreement if buying.
- Homeowner’s insurance declarations page
Shows current coverage, premium, and mortgagee clause.
- Property tax statement or receipt
Latest county tax bill showing taxes are current or payment history.
- Bank statements
Last 1-2 months to verify closing funds and residual reserves.
- Investment or retirement accounts
Recent statements for IRA, 401(k), brokerage, or other liquid assets.
- HOA or condo information
Homeowners association statement or condo questionnaire if applicable.
- Trust or title vesting documents
Required when the home is held in a living trust or entity.
- Flood insurance declaration
Current policy if the property is in a flood zone.
- HUD-approved counseling certificate
Required before loan application. Obtained from a HUD-approved reverse mortgage counselor.
Why we pull credit for your reverse mortgage pre-approval
HUD requires a Financial Assessment for every HECM reverse mortgage, including a review of your credit history and record of paying property taxes and homeowners insurance. As part of our standard broker/lender pre-approval process, we typically order a tri-merge credit report through a HUD-approved credit vendor to verify identity, review obligations, and confirm that you can continue paying property taxes, homeowners insurance, and maintenance after closing. Whether a tri-merge is required, and any fees, are set by the wholesale lender and credit vendor — not by HUD as a stand-alone rule.
Pay for your credit report — SmartPay
Simply Approved Mortgages uses MeridianLink SmartPay to securely collect the credit report fee for your reverse mortgage pre-approval. Payment goes directly to the credit vendor — not to us — and unlocks a tri-merge credit report (Equifax, Experian, TransUnion) that your loan officer uses to complete the broker/lender pre-approval file for HUD's Financial Assessment.
- Secure, PCI-compliant checkout hosted by MeridianLink
- Standard step in our broker/lender pre-approval process (not a HUD stand-alone requirement)
- Optional — you can decline; your loan officer will explain any impact on your options
You'll be redirected to cic.meridianlink.com (SmartPay).
Check your credit first — $1 trial at MyITINCredit
Before you apply, it's smart to know exactly where your credit stands. MyITINCredit offers a $1 trial for 15 days that includes all three credit reports and scores (Equifax, Experian, TransUnion), plus ongoing credit monitoring so you can catch errors, dispute inaccuracies, and watch for identity theft.
- See all 3 bureau reports & scores before your lender does
- Ongoing monitoring alerts you to new accounts or score changes
- Fix errors early — cleaner credit can widen your reverse mortgage options
You'll be redirected to myitincredit.com. Third-party service — terms apply.
Credit report fees are paid directly to the credit vendor. Simply Approved Mortgages (NMLS #2620881) does not profit from the credit pull. MyITINCredit is an independent third-party service; pricing, terms, and features are set by that provider.
Ready to See Your Reverse Mortgage Numbers?
Get your personalized HECM estimate from a Simply Approved Mortgages licensed loan officer, or run the numbers yourself with our calculator — free, no obligation, no hard credit pull.