Plain English

Reverse mortgage terms, explained the way I'd explain them at your kitchen table

I'm Chris Nassief. Seven in ten seniors say they don't understand reverse mortgages, and the jargon is a big reason why. Here is every term you will hear from me, a counselor, or a lender, in plain English, with a real example where it helps. Read it once and you will understand your own paperwork.

How much you can get

Four terms decide the number. Everything else is detail.

Maximum Claim Amount MCA: The home value FHA will count. It is the lesser of your appraised value or the national HECM limit, which is $1,249,125 for 2026. A $1.3 million home and a $10 million home both count as $1,249,125.Example: your home appraises at $650,000. Your MCA is $650,000.
Principal Limit Factor PLF: The percentage of the MCA you can borrow. HUD publishes the table. It goes up with the age of the youngest borrower and down as the expected rate rises. Most factors between 62 and 99 fall between 35% and 75%.Example: at age 72 and a 6.75% expected rate the factor is 38.3%.
Principal Limit PL: MCA times the PLF. This is the gross amount of the loan before anything is paid off. It is the closest thing a reverse mortgage has to "loan to value."Example: $650,000 x 38.3% = $248,950.
Net Principal Limit NPL: What is left for you after the mandatory obligations (see below) come out of the principal limit. This is the number that matters to you.Example: $248,950 minus a $120,000 mortgage payoff and $21,000 in costs leaves $107,950.
Mandatory Obligations: Everything that must be paid at closing or in the first year: your existing mortgage and liens, judgments on the title, delinquent federal debt, closing costs, the upfront mortgage insurance, and, if the loan needs a LESA, the first year of taxes and insurance. They can be financed into the loan or paid by you at closing.
Initial Disbursement Limit: FHA's cap on what you can take in the first 12 months. It is the greater of 60% of your principal limit, or your mandatory obligations plus 10% of the principal limit. On a fixed-rate loan this is your one and only draw. On an adjustable loan the rest becomes available after the first year.Example: PL $250,000, liens $50,000, costs $15,000. 60% of PL is $150,000. Minus $65,000 of payoffs leaves $85,000 available in year one.
Lien Seasoning: A lien can be paid off with reverse mortgage money only if it has been on the home for more than 12 months, or gave you less than $500 cash. A HELOC is the exception when the payoff fits inside your first-year limit. Tell me early about any recent loan against the home.

Rates

A reverse mortgage has two rates that matter, and people mix them up constantly.

Expected Rate ER: The rate HUD uses to look up your principal limit factor. On an adjustable loan it is the 10-year Treasury rate plus the lender's margin. On a fixed loan it is simply the fixed rate. The expected rate is not what you pay. It sets how much you can get.
Initial Rate: The rate your balance actually starts accruing at. On an adjustable loan it is the 1-year Treasury rate plus the same margin, and it adjusts monthly or annually. On a fixed loan it is the fixed rate for life.
Margin Lender Margin: The percentage the lender adds to the index. It never changes over the life of the loan. Index plus margin equals your rate.Example: index 4.25% plus a 1.75% margin equals a 6.00% rate.
Index: The published benchmark the adjustable rate follows. HECMs use the Constant Maturity Treasury (CMT): the 1-year CMT for your actual rate and the 10-year CMT for the expected rate.
Cap: The most an adjustable rate may rise or fall over a set period and over the life of the loan. It is printed on your note.
Adjustable Rate HECM HECM ARM: A reverse mortgage whose rate moves with the index, monthly or annually. This is the only kind that offers a line of credit or monthly payments.
Fixed-Rate HECM: One rate for the life of the loan. The trade-off is that all the money comes as a single lump sum at closing, limited by the initial disbursement rule.
Credit Line Growth Rate: The rate at which the unused part of your line of credit grows each year. It is the same fully indexed rate your loan balance grows at, plus the mortgage insurance rate. The growth happens whether or not your home's value rises.

Costs

Real costs exist. Most are financed into the loan, so you rarely write a check, but they reduce what you receive.

Origination Fee: The lender's one-time fee. FHA caps it at 2% of the first $200,000 of home value plus 1% of the value above that, with a $2,500 minimum and a $6,000 maximum.
Initial Mortgage Insurance Premium IMIP or upfront MIP: 2% of the maximum claim amount, paid to FHA at closing. It is what buys the non-recourse protection for you and your heirs.
Annual Mortgage Insurance Premium MIP: 0.5% of your loan balance per year, added to the balance. There is no monthly bill.
Third-Party Closing Costs: Appraisal, title insurance, settlement, recording, and flood certification. Title insurance coverage is based on the lesser of the appraised value or the MCA, but the policy amount on the documents is written at 150% of that figure. That is normal for a reverse mortgage and surprises a lot of people.
HUD Counseling Fee: Typically around $125, paid to the independent counseling agency, not to me. Some agencies waive it for hardship.

Ways to receive the money

Two homeowners with the same house can end up in very different places depending on this choice.

Lump Sum: Take the available amount at closing. The only option on a fixed-rate HECM. Interest starts on the whole balance right away.
Line of Credit LOC: Draw what you need, when you need it. Interest accrues only on what you draw. The unused portion grows every year and cannot be frozen or cancelled as long as you meet the loan terms. Adjustable-rate loans only.
Tenure Payment: Equal monthly payments for as long as you live in the home and follow the loan terms. They keep coming no matter how long you live, even if the home's value falls.
Term Payment: Equal monthly payments for a number of months you choose. A shorter term means a bigger check. When the term ends the payments stop, but you still live in the home with no mortgage payment.
Modified Tenure: A tenure payment plus a line of credit held in reserve.
Modified Term: A term payment plus a line of credit held in reserve.

People and protections

These are the terms that protect you, your spouse, and your heirs.

Non-Recourse Feature: You and your heirs will never owe more than the home is worth when it is sold, no matter what the loan balance says. FHA insurance covers the difference. This is the single most important protection in the program.
Mortgagor: Anyone who stays on the title. That must include the borrower and may include a non-borrowing spouse or another co-owner who does not qualify as a borrower.
Non-Borrowing Spouse NBS: A spouse who is not a borrower, usually because they are under 62. An eligible non-borrowing spouse can stay in the home after the borrower passes. The loan amount is then based on the spouse's age, which lowers it. Worth every dollar.
Primary Residence Principal Residence: A home you live in more than half the year. A reverse mortgage is only available on a primary residence, or on a home that becomes your primary residence within 60 days of closing.
Financial Assessment: HUD's required review of your credit history, your history of paying property taxes and insurance, and your monthly residual income. Its purpose is to make sure the loan is sustainable for you. It is not a credit score test.
Life Expectancy Set-Aside LESA: If the financial assessment shows a risk, the underwriter sets aside part of your principal limit to pay your property taxes and insurance over your expected lifetime. It lowers the cash available, and it keeps the home safe.
HUD Counseling Certificate: Proof that you met with an independent, HUD-approved counselor. Nothing on the loan can be charged or ordered until you have signed it, along with the application. It is valid for 180 days.

The process

In the order it actually happens.

Proposal: The written quote I prepare from your real numbers: every product, rate, cost, and what you would receive. You get this before anything is signed.
Application Package: The formal Uniform Residential Loan Application (Form 1003) with the reverse mortgage sections, plus the required disclosures. Signed after counseling.
FHA Case Number: FHA's file number for your loan. It must be assigned before the appraisal can be ordered, and it can be transferred if you switch lenders.
Appraisal: An FHA appraiser's opinion of your home's value and condition. It sets the MCA and can flag required repairs.
Underwriting: The lender's review of the application, appraisal, title, credit, counseling certificate, income, and property-charge history. The underwriter issues conditions, then a Clear to Close.
Clear to Close CTC: Every condition is satisfied. Closing documents are prepared and the rate is locked.
Rescission Period: On a refinance you have three business days after signing to cancel for any reason. Funds are disbursed after it ends.
Repair Set-Aside: If the appraiser requires repairs that can be finished after closing, money is held back to pay the contractor once an inspector confirms the work. Leftover funds go to your line of credit, or to you on a fixed-rate loan.
HECM for Purchase H4P: Using a reverse mortgage to buy a new home. You bring a large down payment and the HECM finances the rest with no monthly mortgage payment. You must move in within 60 days.
HECM to HECM Refinance H2H: Refinancing an existing reverse mortgage into a new one, usually because the home's value or the lending limit rose enough to make more money available.
Home Equity Conversion Mortgage HECM: The official name for the FHA-insured reverse mortgage. Pronounced "heck-um." Every term on this page belongs to this program.

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This glossary is for education only and is not an offer or commitment to lend. Program rules are set by HUD and FHA and can change. Pricing is subject to change. Reverse mortgages are loans that must be repaid, typically when the last borrower leaves the home. Borrowers must complete HUD-approved counseling. This material is not from HUD or FHA and was not approved by HUD or any government agency. The Mortgage Exchange Service LLC, NMLS ID 205178, Virginia MC2538, Maryland MB11493. Equal Housing Lender.

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NMLS ID# 205178 · Equal Housing Opportunity · Not a commitment to lend.