How to Calculate TALC Rates for Reverse Mortgages
- 1). Determine the current loan balance. If considering a reverse mortgage, ask your mortgage adviser what the initial loan balance would be. If you already have a reverse mortgage, the balance will be on the loan statement you receive in the mail.
- 2). Multiply the loan balance by the accrued mortgage insurance premium. The accrued mortgage insurance premium is fixed at .005 percent. For example, if the loan balance is $422,212, $422,212 multiplied by .005 equals 2,111.
- 3). Divide the result found in Step 2 by 12 to determine how much accrued mortgage insurance will be charged for this month. Because the annual cost of the loan is being determined, and because there are 12 months in one year, the number 12 is used. For example, 2,111 divided by 12 equals $176. Thus, a total of $176 in accrued interest is charged for this month. Write this number down, as it will be added to later results.
- 4). Multiply the interest rate on the loan by the loan balance. For example, if the loan balance is $422,212, and the interest rate is 5.56 percent, $422,212 multiplied by .0556 equals 23,475. Divide that result by 12, since there are 12 months in a year. For example, 23,475 divided by 12 equals 1,956. Thus, a total of $1,956 in interest is being charged for this month. Write this number down, as it will be added to later results.
- 5). Add the accrued mortgage insurance premium found in Step 3 and the accrued interest found in Step 4 together to determine the total cost for this month. For example, $176 plus $1,956 equals $2,132. Thus, the total cost of the reverse mortgage for this month is $2,132. Write this number down, as it will be added to later results.
- 6). Add the total monthly cost found in Step 5 to the loan balance. For example, if the loan balance is $422,212 and the total monthly cost is $2,132, the loan balance at the end of the first month is $424,344.
- 7). Repeat Steps 1 thru 6 for the remaining 11 months. Be sure to use the loan balance at the end of the month, as found in Step 6, to calculate that month's monthly cost. For example, for month two, the current loan balance is now $424,344.
- 8). Add the total cost for the reverse mortgage for all 12 months together to determine to total annual loan cost, or "TALC," for the reverse mortgage.
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