As companies compete for talent, it’s important that your organization offers the right mortgage support to transferring employees. Whether it’s a new candidate or an existing employee, don’t lose talent because your organization isn’t offering the same or more support than your competitors. Given the current housing market conditions, it’s especially important to evaluate mortgage support so that contracts are not canceled.
According to a CNBC article, “Amid higher interest rates and a softening housing market, home buyers are continuing to back out of purchase contracts at an elevated rate. About 64,000 home-purchase agreements were canceled in August, according to a new report from Redfin. That’s equal to 15.2% of home contracts initiated during the month and similar to the 15.5% canceled in July. A year ago, the share was 12.1%.”
Rising interest rates could also have a negative impact on your transferees and their willingness or ability to relocate. When some employees are finally ready to go under contract and lock in their mortgage rates, the rates could be much higher than they were when they got pre-approved or when they received an accepted offer. This could also cause a canceled contract if the new rate is unaffordable.
“Data from the National Association of Realtors shows that housing affordability has plummeted by 29% over the last year – marking the steepest annual decline on record. The downturn is attributed to rapid mortgage rate and home price growth that has significantly quelled affordability. That’s because buyers of a median-priced home are now facing monthly mortgage payments that are more than $400 higher than they were in 2021,” according to a Business Insider article.
There are many ways that your organization can help transferring employees with mortgages. Below we’ve outlined a host of options that WHR Global (WHR) can facilitate through our preferred mortgage provider network.
Mortgage Interest Differential Assistance (MIDA)
MIDA helps employees when mortgage interest rates are high by easing the gap between current market rates and the lower rates that employees have on their current mortgage. This is not to be confused with a sliding scale (explained below), or a standard 1% loan origination/loan discount benefit because those benefits are applied regardless of the interest rate. The MIDA can be paid as a direct mortgage subsidy through the mortgage company. The MIDA benefit is determined by factoring the lower amount of either the transferee’s current outstanding loan balance (rounded up to the nearest $1,000) or the new mortgage amount. The difference between their current interest rate and the new (higher) mortgage interest rate, for similar products, (i.e., 30-year fixed rate to 30-year fixed rate), and multiplying the difference by the qualifying amount:
An Example from a WHR Supplier Partner, Rocket Mortgage
5.00% New Interest Rate
2.00% Interest Rate Differential X $400,000 Current Loan Balance (Old Mortgage)
$8K is the yearly mortgage interest differential (.02 x $400K = $8K)
Payout ExampleYear 1: $8K x 100% = $8K Total, or $666.66/month ($8K/12 = $666.66)
According to Rocket Mortgage, “The above is just an example. You can design the overall MIDA structure to what works best with your company culture and relocation program needs. For example, you can pay the full MIDA amount in year one only, adjust the percentages each year, or lengthen the term of the MIDA payment, etc.”
Interest-Based Mortgage Subsidy
This option slowly increases the transferee’s interest rate over time. Your organization pays the difference between the current note and the lower subsidized rate. Every year, the employee’s responsibility will increase by a 1% higher subsidized rate. This helps transferees transition into the higher mortgage payment. It can be applied toward principal and/or interest. If the subsidy is interest-based, your organization’s payout is dependent on the loan amount (which may be variable). To avoid this variable, some companies define a fixed dollar amount.
Dollar-Driven Mortgage Subsidy
When an employee is moving to a higher cost of living area (not due to higher interest rates), this option provides a pre-determined dollar amount based on the employee’s level. The amount can even be determined pre-move and pre-home selection. It can be applied 100% to principal and/or interest, based on the employer’s policy. It cannot exceed the monthly mortgage payment amount. Sometimes the subsidy is payable over a period of time that the employer chooses, 3 years, e.g. The payment is made directly to the mortgage company and applied against the employee’s mortgage payment.
Sliding Scale: Buying Down Points
A one-time expense used to permanently buy down the interest rate on a new home. This is especially helpful when interest rates are rising. Your organization will designate at what rate the scale starts and what mortgage discount points will be covered for each interval of the scale. Mortgage points are prepaid interest paid upfront in exchange for a lower interest rate and lower monthly payments.
Loan Discount Points (points) – 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. E.g., 1 point is 1% of the loan amount. One discount point does not equal a 1% reduction in interest rate. The value of a loan discount points is based on market conditions.
Let’s say the current market interest rates on a 30-year fixed rate loan is 5.25%, the transferee would be eligible for 1 loan discount point based on the example sliding scale below based on $400K loan amount:
- 0% – 4.99% = 0 pts
- 5% – 5.49% = 1 pts = $4K
- 50% – 5.99% = 1.5 pts = $6K
Buying Down Points Example on a $200K loan
Other Possible Ways to Help the Transferee
$3K credit: Employer to cover the closing, or the credit could be used for escrow, or used to buy down the interest rate.
“It’s so important to provide the right benefits to transferees, including mortgage support. As an organization, you don’t want to lose a valuable employee or a potential new candidate to another company.”
As a Relocation Management Company, WHR can provide your employees with our pre-approved network of mortgage providers.