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.
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.
Reverse mortgages are different from traditional mortgages and come with their own set of financial terminology and data. Among them is the total annual loan cost. With a reverse mortgage, TALC is used as a statistic rather than APR in order 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.
[Important: 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 mattering less 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 be different depending on the interest rate attached to the loan. Most reverse mortgages require the applicant to sign a document indicating the applicant has seen and understood the total annual loan cost.
Fees Included in TALC
There are multiple fees that should 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 will also 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.