Relocating for a new job can be one of the more stressful events in your life, even if you are moving for a promotion or to a desired location. For those who need to sell and buy a home, the current US real estate market and rising mortgage interest rates, there has been a real impact to important decision to buy or rent. Some are delaying the decision to purchase, hoping that the home values and interest rates will adjust in 2023 to a level where they can afford to purchase.
The mortgage interest rate has a huge impact on how much you can afford to buy, especially when home values are higher in many markets given the increase of average home values over the past few years. Since October, mortgage rates have increased by more than 0.35% and as of January 5, 2023, the average 30-year fixed rate is 6.48%. According to Freddie Mac Primary Mortgage Market Survey one year ago, this rate averaged 3.22%.
Looking ahead – updated forecast from The Mortgage Bankers Association predict that mortgage interest rates will drop in 2023 to an average of 5.4%. So, if rates decline, those who decide to purchase in the higher rate environment will be able to refinance in the future into a lower rate mortgage.
Supporting Relocating Employees
What can an employer do to support transferring employees during this challenging time? Well, there are options, but there are pros and cons to each approach. It is a good time to review current relocation policies and update them with the types of assistance that will meet needs of the relocating employees as well as help the company achieve their 2023 hiring and retention goals.
There are four common approaches historically used in relocation policies, however, these options may increase your relocation spend, but the cost can be managed through policy limits and benefit terms.
Mortgage Interest Differential Allowance (MIDA)
To assist with the gap between a new mortgage with a higher interest rate and the lower interest rate on an existing mortgage, a mortgage interest differential allowance (MIDA) is an excellent tool for relocating employees. A MIDA can be paid annually, quarterly, or monthly in typically in graduated payments over a term of between two to five years.
Mortgage Payment Differential (MPD)
A mortgage payment differential is a fixed amount of money that is used to supplement the relocating employee’s mortgage payments. A MPD can be equally divided over the term or set up in graduated payments, allowing the employee to soft land into their mortgage. A common term for a MPD is two to three years.
A mortgage subsidy reduces the employee’s mortgage interest rate for a period of time. A mortgage lender would have to agree to participate because the lender would administer the mortgage subsidy for the term of the benefit. A common term for a mortgage subsidy is two to five years and are often graduated.
Mortgage points are a way for an employee who is relocating to buy down their interest rate permanently and lower their monthly payment. This is a one-time cost and benefit lasts over the term of the loan.
What Can Employers Do Now
Even though interest rates and home values appear to be making the adjustments desired, it may not be fast enough for your transferees. Working with a relocation management company like InterLink Relocation Resources can help you explore the policy options in detail and understand how this meaningful support can help your employees navigate this difficult aspect of home market. InterLink’s policy consulting service is based on decades of industry experience, client culture, and market standards. In the end, getting the right talent in the right location at the right time is the common goal.
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