The last example in Appendix K [(d)(2), Sample Form] is the combination of a lump sum, monthly advances, and a credit line. The borrower receives a lump-sum advance of $1,000, plus $301.80 monthly advance at consummation. The borrower will receive a monthly payment of $301.80 for the 12-year term of the loan. In addition, the borrower has a $4,000 line of credit.
| Lump sum to borrower | $1,000 | Assume annual dwelling appreciation rate | 4% |
| Monthly payments to borrower | $301.80 | Appraised value of property | $100,000 |
| Total loan costs financed | $5,000 | Age of the youngest borrower | 75 |
| Credit Line | $4,000 | Estimated loan term | 12 years |
| Contract interest rate | 9% | Equity Reserved | 7% |
STEP 1 — CALCULATE FUTURE VALUE OF ALL ADVANCES
Future Value of All Advances
| N | I | PV | PMT | FV |
|---|---|---|---|---|
| 144 months | 0.75% (HP 12c) 9% (HP 17bII) |
$301.80 | ? | |
| 144 months | 0.75% (HP 12c) 9% (HP 17bII) |
$1,000 (initial advance) | ? | |
| 144 months | 0.75% (HP 12c) 9% (HP 17bII) |
$2,000 (1/2 of credit line)1 | ? | |
| 144 months | 0.75% (HP 12c) 9% (HP 17bII) |
$5,000 (total loan costs) | ? |
I = 9% contract rate divided by 12 months in a year = 0.75%
When calculating the future value of monthly payments, the calculator must be set to BEG mode (payments made at the beginning of the month).
For the HP 17bII, the P/YR must be set to 12 (12 payments per year).
| FV ($301.80 monthly for 12 years) = | $78,360.68 |
| FV ($1,000 after 12 years) = | $2,932.84 |
| FV ($2,000 after 12 years) = | $5,865.67 |
| FV ($5,000 after 12 years) = | $14,664.18 + |
| FV of all advances = | $101,823.37 |
STEP 2 — CALCULATE FUTURE VALUE OF THE DWELLING
I = Assumed annual dwelling appreciation rate
Future Value of the Dwelling
| N | I | PV | FV |
|---|---|---|---|
| 12 | 4% | $100,000 | ? |
For the HP 17bII, the P/YR must be set to 1 (one payment per year).
FV = $160,103.22
$160,103.22— $17,627.19 (7% of FV of the dwelling) = $148,895.99
STEP 3 — CALCULATE REPAYMENT AMOUNT
The repayment amount is the lesser of the FV of all advances ($101,823.37) or the FV of the dwelling minus equity reserved ($148,895.99).
Repayment Amount = $101,823.37
STEP 4 — CALCULATE THE TALC RATE USING THE APRWIN PROGRAM
Here are the entries for the APRWin program:
| Loan Information | |
| Amount Financed: | $3,301.80 ($1000 lump sum + $301.80 first monthly advance + one-half of $4,000 credit line) |
| Disclosed APR: | 11.03% (If the disclosed TALC rate is being verified, enter the disclosed rate here. If the TALC rate is being calculated, enter an estimated rate, e.g., 1.) |
| Disclosed Finance Charge: | Leave blank |
| Loan Type: | Installment Loan |
| Payment Frequency: | Monthly |
Payment Schedule
Payment Stream #1 — The Payment Amount must be entered as a negative value. The number of payments is the remaining number of advances left after the initial advance at consummation.
Payment Stream #2 — The Payment Amount is the amount from step 3.
APR = 11.03% (This is the TALC rate based on the multiple advances to the borrower [$301.80 x 144 = $43,459.20], $1,000 initial advance, $2,000 credit line outstanding, and the $101,823.37 payment.)
DISCLOSING REVERSE MORTGAGES:
In the previous example, we calculated the TALC rate based on a 12-year loan term with an assumed annual appreciation rate of 4 percent, but that is just one of nine TALC rates that must be disclosed. Section 226.33(c) of Regulation Z requires creditors to disclose TALC rates based on three loan terms as determined by the life expectancy of the youngest borrower in accordance with Appendix J to Regulation Z, and to assume annual appreciation rates of 0 percent, 4 percent, and 8 percent for the dwelling.
Below is the reverse mortgage disclosure for example 4. (Note that the TALC rates based on a six-year loan term, which is one-half of life expectancy of the youngest borrower, are optional):
| TOTAL ANNUAL LOAN COST RATE | ||||
|---|---|---|---|---|
| Loan Terms | Monthly Loan Charges | |||
| Age of youngest borrower: | 75 | Service fee: | None | |
| Appraised property value: | $100,000 | |||
| Interest rate: | 9% | Other Charges | ||
| Monthly advance: | $301.80 | Mortgage insurance: | None | |
| Initial draw: | $1,000 | Shared appreciation: | None | |
| Line of credit: | $4,000 | Repayment Limits | ||
| Initial Loan Charges | Net proceeds estimated at 93% of projected home sale | |||
| Closing costs: | $5,000 | |||
| Mortgage insurance premium: | None | |||
| Annuity cost: | None | |||
| Assumed Annual Appreciation | 2-year loan term | [6-year loan term] | 12-year loan term | 17-year loan term |
| 0% | 39.00% | [14.94%] | 9.86% | 3.87% |
| 4% | 39.00% | [14.94%] | 11.03% | 10.14% |
| 8% | 39.00% | [14.94%] | 11.03% | 10.20% |
|
The cost of any reverse-mortgage loan depends on how long you keep the loan and how much your house appreciates in value. Generally, the longer you keep a reverse mortgage, the lower the total annual loan cost rate will be. This table shows the estimated cost of your reverse-mortgage loan, expressed as an annual rate. It illustrates the cost for three [four] loan terms: two years, [half of life expectancy for someone your age], that life expectancy, and 1.4 times that life expectancy. The table also shows the cost of the loan, assuming the value of your house appreciates at three different rates: 0 percent, 4 percent, and 8 percent. The total annual loan cost rates in this table are based on the total charges associated with this loan. These charges typically include principal, interest, closing costs, mortgage insurance premiums, annuity costs, and servicing costs (but not disposition costs—costs when you sell the home). The rates in this table are estimates. Your actual cost may differ if, for example, the amount of your loan advances varies or the interest rate on your mortgage changes. SIGNING AN APPLICATION OR RECEIVING THESE DISCLOSURES DOES NOT REQUIRE YOU TO COMPLETE THIS LOAN. |
||||
- 1 For a credit line, the TALC must be based on the assumption that 50 percent of the line of credit is outstanding at closing. TALC rate calculations effectively treat the transaction as a closed-end credit transaction after that.