Industry Trends: Mortgage Forecast
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Industry Trends: Mortgage Forecast
As inflation has grown, mortgage interest rates have been steadily increasing. The mortgage payment for the same price house (median $428,000) is almost $1,000 more this year compared to last year. This rise in interest rates can impact an employee’s decision to accept a job transfer to a new city. As a result, corporations with a focus on recruiting and retaining talent are now considering mortgage assistance options for relocating employees.
Factors That Affect Mortgage Rates
Mortgage rates are impacted by a variety of factors, some of which are adjustable by the applicant or employee. The factors that most commonly affect mortgage rates, according to Rocket Mortgage, are the following:
- Fixed Factors. These are factors that cannot be changed or altered by the employee to improve their mortgage rate. Fixed factors that impact rates are inflation, the economy, the Federal Reserve, bond prices, and world events, such as COVID-19 and the Russian-Ukraine conflict.
- Adjustable Factors. These are factors that the employee impacts and can work to improve over time, if needed, to receive a better mortgage rate. Adjustable factors are property type and personal factors, which include credit score and debt-to-income ratio.
As of the third week of February 2023, the Primary Mortgage Market Survey® from Freddie Mac has a 30- and 15-year at 6.32% and 5.51% respectively. This means that rates have been increasing steadily since the start of the month and are up approximately 3% since February 2022. While housing costs are increasing and impacting inflation, the economy is showing resilience for the time being. Some researchers believe that this is the highest that rates will rise, while others are not convinced.
According to a recent report from Rocket Mortgage, there are four assistance options that are commonly being discussed:
- MIDA. The Mortgage Interest Differential Assistance Program is where the employer pays the difference between the new, higher mortgage rate and the original mortgage rate for a set period of time. This means that if the employee’s previous rate was 3% and the new rate is 7%, then the employer will pay 4% for a set number of years.
- IBMS. The Interest-Based Mortgage Subsidy is a slow increase in the percentage of the mortgage rate that the employee pays each year until the employee is paying the entire amount. This means if there was a 4% rate difference, per the example above, the company would increase the rate by 1% each year until the employee is paying the full 7% by year four.
- DDMS. The Dollar-Based Mortgage Subsidy is a set amount that the company is willing to pay to the employee to offset the mortgage rate increase. For example, if the company is willing to pay $30,000, then they may choose to pay 40% ($12k) the first year, 30% ($9k) the second year, 20% ($6k) the third year, and 10% ($3k) the fourth year to allow the employee time to adjust to the new rate. By the fifth year, the employee will no longer be receiving assistance.
- Sliding Scale. The Sliding Scale option is where the company pays a fee based on discount points that are set by the market to reduce the rate of the loan from the loan origination during a rising rate environment. For example, on a $400,000 loan, the sliding scale would be as follows: 0-4.99% would not be eligible for a discount; 5-5.49% would receive 1 point, which is equal to the company paying $4,000; 5.50-5.99% would receive 1.5 points for a $6,000 company payment; etc. Assuming that the loan is at 5.25%, the company would pay the 1 discount point or $4,000 to lower the rate for the employee of the 30-year term of the loan.
Lastly, another option for consideration is a Cost of Living Allowance or Adjustment (COLA). A COLA is offered to employees when they move to an area with a higher cost of living and is used to offset this cost. The amount that the employee receives is based on cost factors, such as housing, utilities, and taxation. COLA can be a one-time payment or regular installments over a period of time. (Worldwide ERC)
Researchers agree that the current mortgage rates will make it difficult for relocating employees to afford to purchase a new home when compared to rates from a year ago. Forecasts are being used to make educated predictions and assumptions for the coming year to decide on any corporate policy changes regarding mortgage assistance. These types of programs can ease the stress of the transferee and possibly be the deciding factor in whether an employee agrees to be relocated.
At NuCompass, our Client Relations team works directly with our mortgage partners to stay informed of the latest mortgage assistance programs. We can help you gain a better understanding of available options and determine if the right policies are in place at your organization.