When shopping for a reverse mortgage, you want to know how the interest rates and closing costs on various loan scenarios compare. The TALC disclosure is designed to make comparing easy.
How To Compare Reverse Mortgage Loan Costs
What Is a TALC?
TALC stands for Total Annual Loan Cost disclosure. It is a potential reverse mortgage borrower's good friend. TALC allows for an apples-to-apples comparison of reverse mortgage costs on various scenarios. In 1994 and 1995, Congress and the Federal Reserve made changes to key laws that govern how lenders must reveal to consumers the potential costs associated with reverse mortgages. As a result, the TALC disclosure was developed. Reverse mortgage lenders are required by law to provide TALC disclosures within a few days of taking a loan application.
How TALC Works
TALC rates have to be projected using 0%, 4%, and 8% home appreciation scenarios. They must also be calculated using loan terms of 2 years, the borrower's life expectancy, and 40% beyond the borrower's life expectancy. That means each TALC disclosure must offer nine scenarios.
With reverse mortgages, no monthly payments are required, therefore, the balance due continually increases as interest accrues and disbursements are made. Reverse mortgages are non-recourse loans, which means the reverse mortgage lender only has the value of the home as security for the balance due. If the lender is obligated to continue sending the borrower payments and the value of the home is no longer sufficient collateral, the reverse mortgage lender can take huge losses. Reverse mortgage payouts are conservative for thos reason. In addition, most reverse mortgages come with mortgage insurance, a significant cost of borrowing.
The formulas used are sophisticated, but ultimately boil down to an interest rate similar to an annual percentage rate (APR) on a traditional mortgage. The total costs of various reverse mortgages can be compared by simply looking at the TALC rates of each reverse mortgage side by side. Because the TALC rates are calculated by looking into an unknown future, they are only estimates. But, as long as the same assumptions are made on each of the TALC disclosures, they should easily allow a borrower to compare loans.
What Is Included an a TALC Rate
A TALC rate should include the total charges associated with the reverse mortgage. Typically that includes interest charges, closing costs, mortgage insurance premiums, annuity costs if applicable, any equity sharing due the lender, and all servicing costs. What is not included is the cost of selling the home when the loan is repaid.
Reverse Mortgage Lenders Must Supply an Accurate TALC
Penalties are severe if the reverse mortgage lender fails to supply an accurate TALC disclosure. Even a small deviation from the TALC rate can trigger a punishable offence. You can feel secure knowing the TALC disclosure was well-designed to assist in your decision process and that the disclosure provided will be accurate.
Renee Morgan
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