The words on HECM quotes and counseling materials, explained using rules from HUD and the CFPB, so you can compare offers and know your deadlines.
Reverse mortgage paperwork comes with a vocabulary you will not see on a regular home loan. Quotes, counseling packets and required disclosures are full of terms such as HECM, principal limit and TALC, and each one affects real money. This glossary explains the words you are most likely to meet, using rules and figures from HUD and the Consumer Financial Protection Bureau (CFPB).
Why Reverse Mortgage Paperwork Uses Its Own Vocabulary
A reverse mortgage runs in the opposite direction of a regular mortgage. You make no monthly payments, and interest and fees are added to the balance each month, so what you owe grows while your equity shrinks. That structure changes how costs are measured and disclosed, which is why federal rules require a separate cost disclosure and why the required counseling leans on its own set of documents.
The Loan Itself
- Reverse mortgage. A home loan for homeowners 62 and older in which the amount you owe goes up, not down, over time.
- HECM (Home Equity Conversion Mortgage). The most common type of reverse mortgage and the only one insured by the U.S. government. It is available only through FHA-approved lenders.
- Principal limit. The most you can borrow. HUD sets it using the age of the youngest borrower or eligible non-borrowing spouse and the lesser of the appraised value, the HECM FHA mortgage limit or the sales price.
- Eligible non-borrowing spouse. A spouse who is not on the loan but whose age still counts toward the borrowing calculation.
- Principal residence. The requirement that you live in the home the majority of the year, keep paying property taxes and homeowners insurance, and keep the house in good condition.
How You Can Receive the Money
HECM proceeds can be paid in several ways, and the options can be combined.
| Option | What you receive |
|---|---|
| Lump sum | A one-time payment at closing |
| Term | Equal monthly payments for a set period of time |
| Tenure | Monthly payments for as long as you live in the home |
| Line of credit | Funds you draw when you need them |
A HECM can also be used to buy a primary residence if you pay the difference between the proceeds and the sales price plus closing costs in cash.
Cost and Balance Terms
- Loan balance. Everything you owe: the money you received plus the interest and fees added each month. As the balance rises, your equity falls.
- TALC (Total Annual Loan Cost). A disclosure federal rules require for every reverse mortgage. Lenders must show a series of total annual loan cost rates, so you can compare what the loan costs over different assumed loan periods. The true cost depends heavily on how long you keep the loan.
- Set-aside. Part of the reverse mortgage funds held back at closing to pay ongoing property charges such as taxes and insurance, plus maintenance, when you do not have enough of your own money to cover them.
- Federal debt. You cannot owe federal debts such as federal income taxes or federal student loans, though reverse mortgage money can be used to pay them off.
What Happens When the Loan Comes Due
The loan generally must be repaid when you sell the home, no longer live in it, or pass away. It can come due sooner if you fail to pay property taxes or homeowners insurance or stop keeping the home in good repair. In most cases the balance is paid off by selling the home, and if the sale brings more than the loan amount, the remaining equity goes to you or your heirs. Title stays in your name the whole time, but the debt and the deed raise separate questions. Our guide to Does a Reverse Mortgage Really Take Your Home? explains how the two fit together.
Rights, Deadlines and Counseling
- HECM counseling. A required session with a HUD-approved reverse mortgage counseling agency covering your eligibility, the loan’s financial implications and alternatives. Sessions typically run 60 to 90 minutes and can be taken by phone. The lender may not steer you to a particular agency, pay for your counseling, or help schedule it. HUD’s locator can be reached at 800-569-4287.
- Right of rescission. With most reverse mortgages, you can cancel within three business days after closing, for any reason, without penalty. Notify the lender in writing, by certified mail with a return receipt. After you cancel, the lender has 20 days to return any money you paid to finance the loan.
- Certificate. The document you sign after counseling to show you completed it. You do not sign the rest of the counseling package.
What to Read Before You Sign
Your counseling package should include several documents, and each answers a different question:
- The TALC disclosure printout, with the loan’s total annual cost rates.
- A printout of loan comparisons, so offers can be lined up side by side.
- “Preparing for Your Counseling Session,” an informational document.
- The National Council on Aging booklet “Use Your Home to Stay at Home.”
Careful
Watch for pressure and outright scams. The Department of Veterans Affairs does not offer any reverse mortgage, so ads promising veterans special deals are false. Contractors who push you toward a reverse mortgage to pay for repairs may be running a scam, and HUD warns against anyone charging thousands of dollars for information HUD provides free.
One caution from the CFPB: some promoters pitch a reverse mortgage as a way to bridge income while delaying Social Security. The bureau found that the loan’s costs generally exceed the extra lifetime benefits from delayed claiming, and the average reverse mortgage taken at age 62 lasts seven years.
Alternatives deserve the same attention. Waiting, a home equity loan or line of credit, refinancing, downsizing and cutting expenses can reach similar goals with different risks. Our HELOC or Home Equity Loan? How They Differ comparison covers the borrowing options that do come with monthly payments, and A First-Timer’s Guide to Downsizing Your Home covers the sell-and-move route.
Related guides
- Does a Reverse Mortgage Really Take Your Home?: what you keep, what you owe and what your heirs face.
- HELOC or Home Equity Loan? How They Differ: the monthly-payment alternatives to tapping your equity.
- A First-Timer’s Guide to Downsizing Your Home: when selling and moving beats borrowing against the house.
The short version
- A HECM is the only federally insured reverse mortgage, available only through FHA-approved lenders to homeowners 62 and older.
- You make no monthly payments, but interest and fees are added to the balance each month, so the amount you owe grows and your equity shrinks.
- Lenders must disclose a series of Total Annual Loan Cost (TALC) rates for each reverse mortgage, showing costs over different assumed loan periods.
- With most reverse mortgages you can cancel within three business days of closing by written notice, and the lender then has 20 days to return your money.
- HUD-approved counseling is required, the lender may not steer or pay for it, and HUD’s counseling locator can be reached at 800-569-4287.
Readers also ask
What does the TALC disclosure show?
Total Annual Loan Cost rates that federal rules require lenders to disclose for every reverse mortgage transaction. Because the balance grows over time, the rates show what the loan costs over different assumed loan periods.
Do I still own my home with a HECM?
Yes. Title stays in your name, but you must keep paying property taxes and homeowners insurance, live there as your principal residence and keep the house in good repair.
Can I cancel a reverse mortgage after closing?
With most reverse mortgages, yes. You can cancel within three business days for any reason by notifying the lender in writing, and the lender then has 20 days to return any money you paid.
Does the VA offer reverse mortgages?
No. The Department of Veterans Affairs does not offer any reverse mortgage, so ads promising veterans special deals or VA approval are false.
This guide is general information about U.S. mortgages, not financial, tax or legal advice. Loan terms depend on the lender and on your credit, income and property, so confirm the details with your lender, and see consumerfinance.gov for official guidance.
