Forward on Reverse: Understanding Reverse-Speaking, Part TwoAtare E. Agbamu, CRMSReverse Mortgage, Reverse Mortgage Terminology
In my November 2002 column, Forward on
Reverse: Understanding Reverse-Speak, Part One, I
introduced and explained some common reverse mortgage terms, such
as estimated home value, expected interest rate and initial
interest rate. This month, I will continue where I left off,
offering you an ever greater understanding of this unique mortgage
product.
Available Principal Limit (APL)
Subtract service set-aside (SSA) from maximum principal limit
(MPL), and you get the APL.
Borrower-Paid Costs (BPC)
Out-of-pocket costs paid by the borrower.
Cash Requested (CR)
The cash the borrower requests at closing.
Credit Line Growth Rate (CGR)
The rate at which the unused balance of a reverse mortgage credit
line grows. It is usually 50 basis points more than the lender is
charging the borrower. If the lender charges you three percent for
the funds you receive at closing, the lender will pay your credit
line 3.5 percent. Add this feature to the regular home appreciation
of four percent and you have a solid cash machine for
retirement.
Credit Line Requested (CLR)
The credit line the borrower wants the lender to set up at
closing.
Debt Payoff Advance (DPA)
The amount of outstanding lien(s) paid off with reverse mortgage
cash.
Financed Fees and Costs (FFC)
The sum of the up-front mortgage insurance premium (IMIP), financed
origination fee (FOF) and third-party fees (OFC). For a house
valued at $160,000 in the Twin Cities, these fees and costs can
easily average $8,300.
Financed Origination Fee (FOF)
The lender's fee for originating the loan. It is currently the
greater of $2,000 or two percent.
Initial Mortgage Insurance Premium (IMIP)
Currently, the IMIP is two percent of the lending limit. It is
waived if the borrower intends to use the proceeds of a reverse
mortgage for long-term care insurance. The National Reverse
Mortgage Lenders Association is fighting to broaden the scope of
the waiver to include ALL healthcare expenses. For the FHA-insured
Home Equity Conversion Mortgage, IMIP is actually Up-Front Mortgage
Insurance Premium.
Maximum Principal Limit (MPL)
The largest amount in cash that a borrower can receive, assuming
the borrower is paying their closing costs out-of-pocket. For
example, a 73-year-old couple with a home valued at $160,000 and a
lending limit of the same amount in the Twin Cities could get a
maximum principal limit of $105,000, or 66 percent of the home's
value. If the borrowers are not paying all closing costs from their
pocket, it is the number from which all costs and liens is
deducted.
Net Available to You (NAY)
Simply put, take-home cash. You can take it as a lump sum, as a
fixed monthly payment for a fixed period (term), as a fixed monthly
payment for as long as you live in your home (tenure), as a credit
line when needed, or as a combination of either term or tenure, and
credit line.
Net Principal Limit (NPL)
The available principal limit, minus the initial or up-front
mortgage insurance premium, financed origination fee, and other
financed costs (OFC).
Other Financed Costs (OFC)
The sum of third-party fees paid at closing.
Percentage
The portion of the home value used to decide a borrower's cash
advances, expressed as a percent. For example, a borrower's lending
limit may be 50-, 60- or 70-percent of their estimated home value
(EHV), depending on age, interest rate and marital status.
Potential Monthly Payments (PMP)
The cash the borrower receives each month.
Remaining Cash (RC)
The total remaining after cash and requested credit line have been
deducted.
Service Set-Aside (SSA)
A non-cash reduction of the maximum principal limit, reserved to
cover servicing. Servicing fees are added to borrower's loan
balance each month.
Tax and Insurance Set-Aside (TISA)
Amount escrowed for taxes and hazard insurance.
The reverse mortgage is a new frontier in the mortgage credit
arena in the United States, and with it comes many new phrases, as
this column has demonstrated. The acronyms in parentheses are, to
the best of my knowledge, generated from my own devices. Someday,
they will slowly make their way into the lexicon of reverse
mortgage credit, and when reverse mortgages become the premier
component of retirement planning, we will need some acronyms to
facilitate communication:
What is your NAY?
Can I get a PMP of $9,000 in addition to my social security and
401(k) income?
Is my TISA high enough?
New Year Resolution for 2003: Get reverse educated!
Atare E. Agbamu, CRMS, is a senior mortgage consultant and
director of training at Inver Grove Heights, Minn.-based Peoples Choice Mortgage.
Headquartered in Erlanger, Ky., Peoples Choice Mortgage is a member
of the National Reverse Mortgage
Lenders Association. Atare's reverse mortgage interview has
been webcast on Mortgage
Mag Live!, and he currently serves on the Board of Little
Brothers Friends of the Elderly in the Twin Cities. He can be
reached by phone at (651) 389-1105 or e-mail
[email protected].
