Canceling the Deal, Loan Types & Costs, Total Annual Loan Cost

Canceling the Deal

After closing a reverse mortgage, you have three extra days to reconsider your decision. If for any reason you decide you do not want the loan, you can cancel it. But you must do this within three business days after closing. “Business day” includes Saturdays, but not Sundays or legal public holidays.

If you decide to use this “right of rescission,” you must do so in writing, using the form provided by the lender at closing, or by letter, fax, or telegram. It must be hand delivered, mailed, faxed,

or filed with a telegraph company before midnight of the third business day. You cannot rescind orally by telephone or in person. It must be written.

Loan Types & Costs

The most well-known and widely available reverse mortgage is the Home Equity Conversion Mortgage (HECM). This loan is discussed in detail in Part 3. Other types of reverse mortgages and alternatives to these loans are discussed in Part 4. Loan costs can vary by a lot from one

type of reverse mortgage to another. Not all reverse mortgages include the same types of loan costs. As a result, the true, total cost of reverse mortgages can be difficult to understand and compare. That is why federal Truth-in-Lending law requires lenders to disclose a “Total Annual Loan Cost” for these loans.

Total Annual Loan Cost

The Total Annual Loan Cost (TALC) combines all of a reverse mortgage’s costs into a single annual average rate. TALC disclosures can be useful when comparing one type of reverse mortgage to another. But they also show that the true, total cost of an individual reverse mortgage loan can vary by a lot and can end up being much more—or less—expensive than you

might imagine. TALC disclosures reveal that reverse mortgages generally are most costly when

you live in your home only a few years after closing the loan. Short-term TALC rates are very high because the start-up costs are usually a very large part of the total amount that you owe in the early years of the loan.

However, as your loan balance grows larger over time, the start-up costs become a smaller part of your debt. As these costs are spread out over more and more years, the TALC rate declines.

If the loan’s growing balance catches up to the home’s value, your debt is then generally limited by that value. This makes the true cost of the loan decrease at a faster rate. So the longer you live in your home, or the less its value grows, the less expensive your loan is likely to be. Some shortcomings of the TALC disclosure and a more complete way to measure reverse mortgage costs and benefits are discussed in Part 3. 


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