Reverse Mortgage Glossary
Short, plain-language definitions of the HECM and reverse mortgage terms homeowners and families ask about most often.
These definitions are written for homeowners and adult children who want a clear understanding of reverse mortgage terminology before talking with a lender or HUD-approved counselor. The HECM program is federal, so these terms apply equally to California and Arizona homeowners.
HECM
Home Equity Conversion Mortgage — the FHA-insured reverse mortgage program for eligible homeowners age 62 and older.
Principal Limit
The maximum amount of HECM loan proceeds available to a borrower, calculated from age, expected interest rate, and home value.
Non-Recourse
A protection that limits the borrower or heirs' repayment obligation to the value of the home when the HECM becomes due.
MIP (Mortgage Insurance Premium)
FHA insurance charged on every HECM that funds the non-recourse protections and other program guarantees.
LESA (Life Expectancy Set-Aside)
A portion of HECM proceeds set aside to pay future property taxes and insurance when financial assessment requires additional support.
Mandatory Obligations
Costs and payoffs that must be paid at HECM closing from loan proceeds, including existing liens and certain fees.
Financial Assessment
A lender review of income, credit history, and property charges to evaluate the borrower's ability to meet ongoing HECM obligations.
Expected Interest Rate
The interest rate used to calculate HECM principal limit at origination, separate from the actual rate charged on the loan balance.