Transferee Relief for Rapidly Rising Interest Rates
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Transferee Relief for Rapidly Rising Interest Rates

Transferee Relief for Rapidly Rising Interest Rates

Mobility Trends and Hot Topics

Published: May 6, 2022

Homebuyers today are feeling the financial pinch as rising interest rates compound affordability challenges brought on by record home value growth.

This time in 2021, the average interest rate on a 30-year home loan was below 3 percent. In late April 2022, the 30-year mortgage rate surpassed 5 percent – the first time since 2011.

“The monthly mortgage payment it takes to buy the typical home in the U.S. is now up by approximately 34 percent compared with the start of last year,” says NEI’s Mitch Ulrich, SVP, Global Mobility Strategies. “With a 10 percent down payment and a 5.1 percent rate, that has pushed a monthly payment up from $1,298 to $1,742 — an increase of over $400 a month on a $357,000 home.” 

Program Relief Options

Companies can consider several options to provide transferees purchasing homes some relief and to help increase relocation acceptance rates:

1. Interest Rate Driven Subsidy (or “3-2-1 Subsidy”) Option

Benefit: Reduces the transferee’s interest rate over three years so they can adjust to the higher payment. The client pays the rate difference each year until the transferee is paying the contract rate.

Example for a home with a $450,000 purchase price and a $360,000 mortgage at 5.5%:​

NOTE: The loan’s interest rate will depend upon the specific characteristics of the mortgage loan and borrower’s credit profile. Interest rates are provided for illustrative purposes only.

2. Dollar-Driven Mortgage Subsidy Option

Benefit:  Enables an employer to designate a capped dollar amount for relocating employees.

It can be the best method to help a transferee when they are moving into a higher cost of living destination area, but a cost-of-living analysis needs to be performed to determine the amount provided. The lender then determines the subsidy schedule within guidelines of policy and loan product.

Example for a home with a $450,000 purchase price and a $360,000 mortgage at 5.5%, using a cost-of-living variance of $6,000 annually:

NOTE: The loan’s interest rate will depend upon the specific characteristics of the mortgage loan and borrower’s credit profile. Interest rates are provided for illustrative purposes only.

3. Mortgage Interest Differential Assistance (MIDA) Option

Benefit:  Eases the gap between current higher rates and a lower rate the transferee has on their current mortgage.  MIDA can be paid by the client or NEI in a subsidy and applied against the employee’s mortgage payment over a 3-year period (or a client-preferred period). The lender ensures proper administration and servicing over the benefit’s term. 

The payment is determined by taking the difference between the transferee’s current rate and the new (higher) rate for like mortgage products and multiplying it by the current mortgage amount.

Example for a home in the origination location with a current mortgage amount of $300,000 on a 30-year fixed rate conventional loan:

NOTE: The loan’s interest rate will depend upon the specific characteristics of the mortgage loan and borrower’s credit profile. Interest rates are provided for illustrative purposes only.

4. Permanent Mortgage Buydown (or “Sliding Scale”) Option

Benefit: As a one-time expense used to permanently buy down the interest rate on a new home, it allows a client to designate at what rate the sliding scale starts and what mortgage discount points will be covered for each interval of the scale.

Loan Discount Points are fees used to buy down the interest rate at the time of origination for the life of the loan. Points are calculated as a percentage of a loan amount, but one discount point does not equal a one percent reduction in interest rate. The value of a loan discount point is based on market conditions.

Example for a home with a $450,000 purchase price, a 20% down payment, and a $360,000 conforming loan:

NOTE: The loan’s interest rate will depend upon the specific characteristics of the mortgage loan and borrower’s credit profile. Interest rates are provided for illustrative purposes only.

Note -- For Options 1, 2 and 3 above, benefits cease if the employee (1) is no longer employed by the employer; (2) relocates within the period the subsidy is being paid; (3) sells their new home; or (4) modifies or refinances the original mortgage on their new home; any remaining funds will be distributed back to the client / NEI.

Balancing Bad News & Good News

Homebuyers in 2022 should continue to brace for higher mortgage interest rates with some experts believing we may see 5.75 or even 6 percent rates this year. However, these higher interest rates are still extremely low historically, as seen in the chart below, from Rocket Mortgage, going back to 1976:

Rising rates may be the best way to slow run-away home prices. Typically, as interest rates climb, homes’ days on market usually increase and sellers tend to lower prices, making homes more affordable.

Homeowners, overall, have also reached $10 trillion in home equity, according to CoreLogic, so most homeowners can weather rising expenses having built considerable equity as values rose.

No Small Change

NEI and our preferred mortgage service partners can provide best practice trends on this or any other topic to help clients relocate talent where it needs to be. Contact your NEI representative to discuss this or other topics any time.

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