What Is Total Annual Loan Cost?(TALC)?
Total annual loan cost (TALC) is the projected cost that a reverse mortgage holder should expect to pay each year over the life of the loan. The total annual loan cost?is based on?the charges associated with the reverse mortgage, which include principal, interest, mortgage insurance premiums, and closing and servicing costs.
- Total annual loan cost (TALC) is the projected annual percentage cost of a reverse mortgage.
- The TALC will include costs such as origination fees, closing costs, appraisal fees, and mortgage insurance premiums.
- Creditors are required to clearly document how they calculate TALC and disclose this to customers.
How TALC Works
Homeowners taking a traditional mortgage are often presented with a variety of financial statistics to help them understand how much they will ultimately pay for the loan. These stats help the mortgage holder estimate payments and include good faith estimates, annual percentage rate (APR), and truth-in-lending disclosures.
But reverse mortgages are different from traditional mortgages and?come with their own set of financial terminology and data. Among these is the total annual loan cost.
With a reverse mortgage, TALC is used as a statistic, rather than APR, to limit confusion, and it is typically higher than the APR. The cost of a reverse mortgage depends on how long the loan is held and how much the value of the home appreciates. In most cases, the longer the reverse mortgage, the lower the total annual loan cost will be.
Total annual loan cost for a reverse mortgage depends on how long the loan is held and how much the value of the home appreciates.
TALC is calculated under different scenarios, rather than through a straightforward calculation. Ultimately, the borrower must pay back the lesser of the loan balance or property value, with property appreciation being less important in short-term loans.
Longer-term loans with low property value appreciation may limit the value of the property. A homeowner seeking a reverse mortgage is generally shown the total annual loan cost rate via?a table within a document. The rates are an estimate, and the annual cost may differ depending on the interest rate attached to the loan.
Most reverse mortgages require the applicant to sign a document indicating they have seen and understood the total annual loan cost.
Fees Included in TALC
There are multiple fees that are required to be clearly disclosed in any TALC documentation.?All of these costs may be financed as part of the reverse mortgage.
These expenses include an origination fee, which covers a lender's expenses for originating the reverse mortgage, as well as a mortgage insurance premium paid by the borrower to the federal government for providing certain loan protections. Lenders also often charge a monthly servicing fee for administering the loan.
As with a traditional mortgage, a reverse mortgage borrower will have to pay an appraiser for providing a market value of the home, as well as closing costs, which typically cover fees for documentation preparation, title search, credit report, home inspection, and property surveys, among other costs.
A borrower also will be charged interest on the reverse mortgage loan. The interest is compounded, which means the borrower will pay ongoing interest on the principal, plus accumulated interest.
What Is a Reverse Mortgage Disclosure?
Reverse?mortgage lenders?must provide in writing a projected total cost of the reverse loan to you. The TALC is required to be stated, in addition to other mortgage disclosures, because it without it it would otherwise be very difficult to compare reverse mortgage products and find the best?mortgage rates?for your situation.
How Do TALC and APR Differ for Reverse and Traditional Mortgages?
TALC?more accurately describes the cost of a reverse mortgage year after year. With a traditional mortgage, you know how much you are borrowing. But with a reverse mortgage, the amount you will borrow depends on how you choose to take your proceeds, what happens to interest rates and how long you keep the loan. You don't make monthly mortgage payments, so your balance grows until the loan is ultimately paid off. This cost is shown as a TALC rate, which is generally higher than an APR and a more accurate assessment of reverse mortgage costs.
What Loan Elements Make Up the TALC for a Reverse Mortgage?
The TALC will comprise such expenses as origination fees, closing costs, appraisal fees, and mortgage insurance premiums.
The Bottom Line
Total annual loan cost (TALC) is the projected cost that a reverse mortgage holder will pay each year over the life of the loan. The total annual loan cost?is based on?the charges associated with the reverse mortgage, which include principal, interest, mortgage insurance premiums, and closing and servicing costs. TALC for a reverse mortgage depends on how long the loan is held and how much the value of the home appreciates. Lenders must clearly document how they calculate TALC and disclose this to customers.