Supporting Relocating Employees With Rising US Interest Rates

SIRVA
Relocation Services
Global Services
Supporting Relocating Employees in a Rising US Interest Rate Environment

Whether your employees are heading across the country or crossing continents, Sirva has the on-the-ground international relocation services you need. From Canada to Australia and everywhere in between, we understand the nuances across each region .

We provide offerings to satisfy your unique needs, whether selling a home in the U.S., managing a cross-country household goods move, or helping employees to get settled into their new homes in Europe. Our global experience means that you can count on seamless international relocation, no matter what’s next.

Departure Services

From the initial policy consulting call through the move itself, there are a lot of moving pieces associated with employee relocation. Whether planning a domestic or international relocation, SIRVA is expertly positioned to offer the best departure services available during a relocation in every region around the world.

Destination Services

Setting your employees up for success upon arrival at their new locations will be key to successfully meeting your company’s goals. SIRVA’s global network and expansive resources allow us to you achieve your goals. Our destination services and international movers help employees and their families settle in and prosper in their new homes.

Visa and Immigration

SIRVA’s team of experienced international relocation specialists are expertly equipped to manage inbound and outbound global immigration services. With SIRVA’s Immigration team, the focus is on providing a smooth customer experience that enhances the relocation process, not just achieving a successful application.

Employee Counselling

For your employees, a single relocation professional assists with end-to-end coordination of services: a relocation consultant for domestic/intra-country moves or global assignment consultant for international relocation. These consultants are your employees’ resource for all communication and services relating to their move, and coordinate the delivery of all authorised services. Regardless of the service being delivered (temporary housing, moving services, etc.), the employee can rely on the consultant as their go-to resource to address any concerns.

VIP Services

If you are searching for an enhanced service for your employees, SIRVA offers VIP services such as personal relocation assistants, in-home cleaning services, personalised family assistance, and many other tailored and luxury enhancements.

Related Services

Interested in learning more about our global services?

We would be happy to answer any questions you may have.

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External factors, such as rising interest rates, can have a dramatic impact on a company’s ability to attract, retain and move their key talent. Homeowners today may be reluctant to move due to rising interest rates if their current rate is less than the current market rate.

There are a number of approaches that companies can take to assist transferees in a rising rate environment, including:

Four approaches

In this article we will discuss each of these approaches, with examples and pros and cons for each.

Options for Addressing Rising Interest Rates

Each of the following options directly addresses the challenges of higher interest rates and offers solutions that can have a positive impact on the employee’s mortgage payment. While there is no solution that will make the transferee “whole” or completely make up the rate difference, providing one of these options may increase the likelihood that the employee will accept the move.

These options may increase your relocation costs, but the amount of support can be controlled by using budgets or by putting a set of pre-determined criteria in place.

Mortgage Interest Differential Allowance

A mortgage interest differential allowance (MIDA) is designed to assist with the gap between the employee’s new higher interest rate, and the lower interest rate they have on their existing mortgage. This benefit typically applies when the employee’s new mortgage rate is at least two percentage points higher when compared to the mortgage rate on the residence they are selling because of their relocation.

Support is provided for “same type” mortgages only (e.g. 30-year fixed to 30-year fixed, five-year adjustable to five-year adjustable, etc.). It is expected that the employee will apply 100% percent of the equity from the sale of their departure residence towards the down payment and non-reimbursable closing costs on the new residence. Any amount less than 100% can be deducted from the new mortgage amount when making the MIDA calculation.

Payment

The MIDA can be paid as a one-time payment, annually, quarterly or monthly in equal or graduated instalments.

Duration

Typically, a MIDA is provided for two years; however, programmes can range from one to five years. The first payment is paid after both homes have closed and all necessary documentation has been provided.

Calculation

There are various ways that a MIDA can be calculated:

Using the old mortgage balance
Using the new mortgage balance
Using the higher of the two mortgage balances
Using the lowest of the two mortgage balances

Example: Calculation for a two-year MIDA

The MIDA is based on either the old mortgage balance or the new mortgage amount, whichever is less. For example, if the old mortgage balance is $250,000 at an interest rate of 3.50%, and the new mortgage amount is $300,000 at an interest rate of 6.5%, the MIDA is calculated as follows:

6.50% - 3.50% = 3.0%; >2% therefore eligible for MIDA
Select the lower mortgage amount = $250,000
$250,000 x 3.0% (interest rate difference) x two years = $15,000

Mortgage Payment Differential

A mortgage payment differential (MPD) is a pre-determined amount of money that is used to supplement the employee’s mortgage payments for a period of time (typically two to three years). The payment may be evenly distributed or graduated over time. This option is intended to help the employee ease into a higher mortgage payment and is not tied to a change in their interest rate. An MPD is typically used as a solution for high-cost areas, but it can also be effective in a higher interest rate environment.

MPD programmes are administered through participating lenders, like SIRVA Mortgage, who are coordinating the destination home purchase loan. Your organisation would establish the pre-determined benefit amount, duration and methodology of the support. SIRVA Mortgage, or your participating lender, would then apply a monthly amount for the duration of the benefit and effectively subsidise the monthly mortgage payment made by the transferee. The MPD cannot be used for any purpose other than to be applied to the transferee’s mortgage payment.

Example: Calculation for a $300,000 loan on a 30-year fixed rate at 6.50% with a $12,000 benefit (4% of the loan amount)

Year(s)	Monthly P&I payment	Company’s monthly contribution	Employee’s monthly P&I payment	Company’s annual contribution
1	$1,896.21	$500	$1,396.21	$6,000
2	$1,896.21	$330	$1,566.21	$3,960
3	$1,896.21	$170	$1,726.21	$2,040
4 - 30	$1,896.21	$0	$1,896.21	$0
Total Company Contribution = $12,000

Mortgage Subsidy

A mortgage subsidy reduces the employee’s mortgage interest rate for a period of time. A participating lender would administer the mortgage subsidy for the duration of the benefit. Mortgage subsidy dollars cannot be used for any purpose other than to reduce (temporarily) the interest rate on the employee’s loan. The cost is determined once the interest rate is locked and the transferee has determined their exact loan amount. An option is to cap the buydown at a certain dollar amount. A mortgage subsidy is typically used as a solution for high-cost areas, but can also be effective in a higher interest rate environment.

Example: Calculation for a 3-year mortgage subsidy, for $300,000 mortgage, 30-year fixed rate of 6.5%

Year(s)	Subsidised rate	*Monthly P&I payment**	Company’s monthly subsidy contribution	*Employee’s monthly P&I payment @ subsidised rate**	Company’s annual subsidy contribution
1	3.50%	$1,896.21	$549.08	$1,347.13	$6,588.96
2	4.50%	$1,896.21	$376.15	$1,520.06	$4,513.80
3	5.50%	$1,896.21	$192.85	$1,703.36	$2,314.20
4 - 30	6.50%	$1,896.21	$0	$1,896.21	$0
Total Company Contribution = $13,416.96

*The subsidised rate paid by the employee is 3% below the note rate in the first year, 2% below the note rate in the second year, and 1% below the note rate in the third year.

Mortgage Points

Points are a way for a relocating employee to permanently buy down their interest rate and lower their monthly payment. One point is equal to 1% of the loan amount, so for a $300,000 mortgage loan, one point would cost $3,000 While the reduction in the interest rate may vary with the market, the most common result is that each point bought will reduce the mortgage rate by approximately 0.25%. The cost of points cannot be deferred and must be paid at the time of closing. While the up-front cost will be higher than it would be without points, the home buyer is trading the initial expense for ongoing lower monthly payments.

As part of a relocation, companies typically take one of the following approaches when providing points:

Provide a standard amount: 1 point or 2 points
Provide points on a sliding scale based on the current interest rate. The higher the interest rate, the greater the number of points provided

Interest Rate	Point(s)
7% or less	0
7.01% - 7.49%	1/2
7.5% - 7.99%	1
8% - 8.49%	1 1/2
8.5% and above	2

OR

Provide point(s) if the new interest rate is greater than the designated spread between the existing mortgage rate and current rate.

Interest Rate Spread	Point(s)
0 to 2%	0
2.01 to 3%	1/2
3.01 to 4%	1
4.01 to 5%	1 1/2
5.01% +	2

Examples

Interest Rate	Cost of Point(s)	Monthly Payment	Interest Paid over 10 years	Interest Paid over 30 years
6.50%	$0	$1,896.21	$181,872.87	$382,633.47
6.25%	1 point: $3,000	$1,847.15	$174,371.33	$364,974.58
6.00%	2 points: $6,000	$1,798.65	$166,895.36	$347,514.57

Pros and Cons of Rising Interest Rate Approaches

Method	Pros	Cons
Mortgage Interest Differential Allowance (MIDA)	Easy to administer Can be cancelled at any time Benefit ceases when the employee leaves the company	May cost more unless caps are in place Tax assistance may be necessary If SIRVA BGRS is administering, they will need to be updated if employment is terminated, depending upon payment distribution
Mortgage Payment Differential (MPD)	Easy to administer Can be cancelled at any time Directly affects the employee’s mortgage payment Flexible – allows the employer to designate a capped dollar amount and period of time for easing the employee into a higher payment No rate, product or programme restrictions Benefit ceases when the employee leaves the company Tax assistance is not necessary	Only participating relocation lenders can administer Lender will need to be updated if employment is terminated
Mortgage Subsidy	Easy to administer Can be cancelled at any time Directly affects the employee’s mortgage payment Benefit ceases when the employee leaves the company Tax assistance is not necessary	Product or programme restrictions The cost is harder to predict until the interest rate is secured and the loan amount determined Lender will need to be updated if employment is terminated Only participating relocation lenders can administer
Point(s)	Easy to administer Directly impacts the employee’s mortgage payment One-time expense paid at the time of loan closing Flexible – can be set by an interest rate level or by a spread of origination and destination interest rates Tax assistance is not necessary	Typically, 1 point only buys down the rate by 0.25%, depending on the market Is a permanent buydown, therefore, if the transferee leaves the company, the transferee will continue to reap the benefit of the lower rate over the life of the loan

How Can You Assist Your Relocating Employees?

Using the methods outlined above can help you support your relocating employees in navigating this challenging market, have a positive impact on your employees’ mortgage payments, and improve the chances of the willingness of employees to relocate. Which solution you choose is dependent on your employees’ individual circumstances, and on your relocation strategy and budget.

Whatever the financing needs of your transferees may be, SIRVA Mortgage is here to help. With 30 years of focus and expertise in relocation mortgage lending, we understand the important role home financing plays in the relocation process. Please visit our mortgage website to learn more, or contact me, at MortgageClientServices@sirva.com.

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