Similar to the annual percentage rate (APR) required to be disclosed on traditional loans, the “total annual loan cost” (TALC) is a standardized rate calculation intended to give borrowers (in a single number) the projected annual average cost of a reverse mortgage including all itemized closing or otheher costs.

TALC is a useful benchmark for comparing different reverse mortgage programs or using different assumptions. However, the TALC rate has shortcomings and should not be relied upon soley in selecting a reverse mortgage. According to AARP:

When they went into effect in the mid-1990s, TALC disclosures were an important step in alerting consumers to the real costs of reverse mortgages. But since then, a number of problems with these disclosures have become clear.

The vast majority of reverse mortgage borrowers select a creditline. The true cost of these creditlines depends to a large degree on the size and timing of
the cash advances requested by the borrower during the life of the loan.

But TALC regulations require lenders to assume that all borrowers will request one-half of their creditline at closing, and none thereafter. This simplifies the calculation and provides a way to compare different creditlines. But it does not reveal how different the true cost of these loans can be based on a borrower�s pattern of creditline advances. And it does not reflect the value of a growing versus a non-growing creditline.

TALC regulations also require lenders to assume that the initial interest rate charged on a reverse mortgage will never change. This assumption simplifies the calculation and provides a single standard of comparison.

But after the past few years of low interest rates, future rates may be less likely to remain low. So this assumption may result in an underestimate of the true cost of current reverse mortgages.

TALC disclosures also do not address two key considerations for reverse mortgage borrowers:

� the total amount of cash you get from the loan; and
� the amount of equity you or your heirs get to keep at the end of the loan.

A Few More Related Articles of Interest:

Reverse Mortgages Learn The Facts First!

Thoughts on Reverse Mortgages in a Down Housing Market

Reverse Mortgage Interest Rate

HUD HECM Software Instructions

May HECM Activity Rebounds