TALC Disclosure Shows the Cost of a Reverse Mortgage

Reverse Mortgage Costs Are Difficult To Estimate and Compare

It would be very difficult to compare reverse mortgage programs, because the cost of the loan depends not just on the interest rate and loan fees, but on how long you keep the loan, how you choose to take your proceeds, and the appreciation of your home's value. The Truth In Lending Act and Regulation Z help solve this problem. From this law comes the Total Annual Loan Cost disclosure (TALC). This form attempts to standardize the way reverse mortgage lenders present reverse mortgage loan costs.

There Are Many Options For Payments And Interest Rates

Reverse mortgage lenders generally offer the borrower a number of choices. There are typically several ways to get the cash out of the home, such as monthly payments, lump sums, or lines of credit. Additionally, there may be the option of a fixed interest rate or an adjustable interest rate. Within the adjustable rate choice there may be the choice of various indices and margins. Each of these choices can affect the amount of money the borrower can pull from the home.

The TALC Disclosure Standardizes the Comparison Process

The TALC disclosure is one of the main ways that a borrower can decide which reverse mortgage loan option is best. Many people are familiar with the Annual Percentage Rate (APR) calculation of finance charges. The TALC is similar, but goes even further. It does as its name implies and considers the total costs of a reverse mortgage. Such costs can include annuity premiums and any appreciation in the consumer's home. The TALC rate provides the borrower with a percentage figure, a standard comparison point for the various choices of reverse mortgages.

The National Center for Home Equity Conversion has created an excellent tutorial for reading the TALC disclosure. Take a look at the tutorial.

Reverse Mortgages Not a Short Term Fix

Reverse mortgages typically include origination fees and insurance in addition to other closing costs. The up front cost, particularly the mortgage insurance, can be expensive. For this reason, a reverse mortgage is usually not used for a short term fix to a cash problem. Credit cards, lines of credit, or a traditional mortgage might be a cheaper alternative for the short term.