Question:

Is the reverse mortgage TALC disclosure so important?

Answer:

The reverse mortgage TALC disclosure is the only way to compare costs on different reverse mortgage products. TALC stands for True Annual Loan Cost and is used with reverse mortgages only. However, the TALC statement didn't really provide a real comparison of how beneficial one reverse mortgage is compared to another. It only compared costs.

The Role of Improved Reverse Mortgages TALC Disclosures

Specific itemized costs on the TALC are not enough to evaluate the true cost of a reverse home loan. On the whole, TALC depend on how long you stay in your home and whether the home appreciates over time. Also, TALC shows which reverse mortgage plan will be most suitable for you at assumed different rates of home appreciation at 0, 4 and 8%.

In general, the longer you stay in your home after taking the home loan plan for seniors and the less your home appreciates, the lower the value of the reverse loan annual cost.

After TALC was introduced, it has been improved in several respects. The TALC report now includes a different flexible withdrawal plan - a credit line, or tenure or a combination of both. It also assumes that the reverse mortgage interest rate may change.

Some Reverse Mortgage Comparison Factors

On the TALC there will be different scenarios for a reverse home loan and the following are the specific items to consider when comparing different reverse mortgages.

  1. Cash advances - shows how much you get from each reverse mortgage plan.
    • Cash at closing - this is the first installment of the loan that has to be paid to you upon closing, if you wish.
    • Credit line - you might be using a reverse mortgage credit line plan such as HECM. If you do, some creditlines will allow the remaining funds to grow at a specified interest rate.
    • Monthly advance is the amount to receive each month. If it is tenure these payments will continue for the rest of your life. If it is term, these advances will be available to you for a specific number of years.
  2. Loan projections - this section shows different projected life expectancy and how this will affect your loan in terms of interest rate, loan costs, home value and appreciation levels. All the numbers in this section are estimates - they may or may not be applicable to you.

The loan benefits are calculated on 20, 60, 100, 140, 180 per cent of expected median life expectancy for a person at your age.

The rate of reverse home loans can be fixed or can be expected to change. The following numbers are very important to understand:

  • Total cash advances - this is the total cash you are scheduled to receive up to the end of the plan.
  • Cash remaining - this is whatever equity remains to you and your heirs given the expected home appreciation levels.
  • Net cost - this is what you will owe at the end of the loan. This number could be negative if you didn't exhaust your creditline.
  • Total annual rate - this is TALC expressed as annualized interest rate.

7% of your home value is set aside for a home sale closing costs. The sum of total cash advances, cash remaining and net cost parameters has to equal 93% of predicted home value for the assumed duration of the loan.

How to Read Reverse Loans TALC Information

As a borrower, you are advised to read the Understanding Reverse Mortgage Comparisons document, available at the AARP's webpage, explaining the reverse mortgage comparison table.

The AARP stands for American Association of Retired Persons but the abbreviation is the brand name of this US social interest group dedicated to preserving the interest of US citizens of 50 years of age and above. One of their most recent campaigns is related to providing affordable health care and long term financial stability to its members. There is a lot of useful information about reverse mortgages, and it is only one of the issues that could possibly affect you.

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