Total Costs and Model Specifications for Reverse Mortgages

At the end of a reverse mortgage, all of your home's value will have been turned into one of these three things: loan advances, loan costs, or leftover equity.

AARP's model specifications are rules for estimating how much of your home's value will have been turned into these three things at various future times. They also show how to estimate a total annual average loan cost for each of these future times.

When a lender or counselor uses computer software based on the specifications, all of these estimates are based on the creditline advances and future interest rate that you select. You can also choose the rate at which you expect your home's value will grow.

By varying these factors, you can see what effect each has on a loan's total cash advances, total cost, and leftover equity. Keep in mind, however, that all of these figures are estimates. The actual figures will depend on:
• the actual creditline advances you select during the loan;
• the actual interest rates charged on the loan; and
• the actual changes in your home's value during the loan.

The model specifications were originally developed to help consumers compare different types of reverse mortgages. But the estimates they produce are also very helpful in understanding any individual loan. They show you the total picture of what would happen to your home equity based on
• how you expect to use your loan,
• what you think will happen to interest rates, and
• what you think will happen to your home's value.

Articles on "Selecting a Counselor" and "Selecting a Lender" explain how to get loan analyses and comparisons that meet the model specifications.

Cost Versus Other Choices

TALC disclosures and other measures estimate the total cost of a HECM. But only you can determine how much it would be worth to you.

How important is it—how much would you pay—to remain in your present home? To help you evaluate the cost of a reverse mortgages, you need to compare it to what may be your two main alternatives:
• selling and moving elsewhere; or
• continuing to live in your present home with your current income and assets.

AARP does not endorse any reverse mortgage lender or product.