Understanding the TALC on a Reverse Mortgage

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Understanding the TALC on a Reverse Mortgage

The annual percentage rate (APR), which you should take into account while looking for a standard mortgage, is a crucial number. Although the advertised interest rate on reverse mortgages is certainly important, the total yearly loan cost is more telling (TALC).

Here is the formula for TALC and what you may infer from it.

Key Takeaways

  • Lenders are required to provide applicants for reverse mortgages that are federally insured a table of the total annual loan costs (TALC).
  • The TALC is a projection of the interest rate they would have to pay for the loan depending on a number of variables, such as the length of the loan and the value of the house.
  • In general, a reverse mortgage will cost the borrower less annually the longer it lasts.

Reverse Mortgage Basics

A reverse mortgage enables homeowners to access their home equity while still owning and residing in their house to generate an income stream. They have three options for receiving the funds: a lump amount, regular installments, or a credit line they may use whenever they need it. In most cases, the loan is not required to be repaid until the borrower passes away, vacates the property, or sells it.

The home equity conversion mortgage is the most prevalent kind of reverse mortgage (HECM).The Federal Housing Administration (FHA) insures HECMs, and only FHA-approved lenders are permitted to offer them. The lender is safeguarded by the FHA insurance, which the borrower is responsible for paying, in case it is unable to recover all of its funds when the reverse mortgage expires and must be repaid.

What Is Total Annual Loan Coast (TALC)?

The financial instruments known as reverse mortgages are difficult and expensive. A TALC disclosure document must be given to borrowers by lenders before they agree to a mortgage, as required by law.

The TALC disclosure makes numerous different efforts to estimate the cost of the loan. Because no one can foresee precisely how long the borrower will live or be able to reside in the property, it is difficult to forecast how much a reverse mortgage would cost.

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How TALC Is Computed

The following elements go into calculating a reverse mortgage’s TALC:

  • Age of the youngest borrower—While all borrowers must be at least 62 years old to be eligible for a HECM, if a married pair is older or younger than that—for example, 75 and 70—the younger spouse’s age will be taken into account.
  • The property’s assessed value—The HECM lender must choose an appraiser who has been authorized by the FHA to evaluate the house.
  • The loan’s original interest rate was Interest rates for reverse mortgages taken out as a lump payment are typically set. The pricing for the other classes are often flexible.
  • Depending on how the payments are to be set up, the monthly advance, initial draw, and line of credit are taken into consideration as necessary.
  • Closing costs—Like any other kind of mortgage, reverse mortgages may come with a lengthy list of closing expenses, such as title searches, house inspections, and recording fees. The origination cost, which goes to the lender, will be a significant one. Origination costs are limited at $6,000 by law.
  • Mortgage insurance premiums are shown separately on the TALC disclosure form, despite the fact that they might alternatively be regarded as closing costs. FHA insurance costs 2% of the loan upon application, plus an additional 0.5% of the remaining loan total each subsequent year.
  • The lender or loan servicer has the right to impose a monthly fee of up to $35.

While these elements and costs are known at the onset, it is impossible to predict how much the reverse mortgage will cost the borrower throughout the course of the loan. As a result, the cost is calculated in the TALC disclosure using up to 12 distinct scenarios.

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There are at least three possible loan conditions in such instances. The mortgage is thought to be for two years. The third utilizes 1.4 times their remaining life expectancy, whereas the second is based on the youngest borrower’s remaining life expectancy. The option for the lender to provide a scenario based on 0.5 times the borrower’s remaining life expectancy is also available. The disclosure form calculates the cost of the loan for each of those loan periods using three alternative annual home appreciation estimates: 0%, 4%, and 8%.

The TALC form’s statistics will show that the cost of the loan decreases with loan length since charges are spread out over a longer period of time. The HECM rule that states you (or your heirs) cannot owe more than the total loan sum or 95% of the home’s assessed value, whichever is smaller, comes into play when it comes to the appreciation calculations. Therefore, it is preferable for you if your house doesn’t value much.

When to Expect a TALC Disclosure

The TALC disclosure must be sent to you by the lender at least three days before “the conclusion of a closed-end credit transaction” or “the first transaction under an open-end credit plan,” according to the legislation. A loan with a fixed-rate, lump-sum distribution is a closed-end credit transaction; open-end refers to all other varieties.) The TALC form must also state that you are not required to complete the transaction.

You should utilize TALC disclosures to comparison shop since certain expenses might vary from lender to loan.

What are the types of reverse mortgages?

Reverse mortgages come in three different categories. The most typical are home equity conversion mortgages (HECMs), which are guaranteed by the government. Reverse mortgages that are offered by certain lenders are proprietary and not government-insured. These could be for higher sums than a HECM, but you should exercise caution since there are dishonest lenders out there. Single-purpose reverse mortgages, as the name implies, are available in certain states, communities, and charitable organizations and are designed for a single application, such as house renovations.

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Where can I get a reverse mortgage?

Can you get a reverse mortgage if your spouse is under age 62?

A married couple may be eligible for a reverse mortgage on their property if one of them is at least 62 years old. One spouse, however, cannot be a co-borrower on the loan or continue to collect payments from it after the other spouse passes away or vacates the property if that spouse is under the age of 62.

It is possible to identify eligible non-borrowing spouses in the paperwork who are younger than 62 at the time the loan is launched. After the borrowing spouse’s passing, they will no longer be eligible for loan payments, but they are still permitted to live in the house as long as they adhere to specified conditions. After they turn 62, they may also become a co-borrower by refinancing the loan.

The Bottom Line

The lender is required to provide you a table displaying your TALC when you submit an application for a HECM. It may be used to evaluate the reverse mortgage options of various lenders since it provides an estimate of what the loan will probably cost you based on a number of potential situations.

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