A summary of a webinar presented by AIRINC and Rocket Mortgage, April 2023.
Mortgage repayment rates
Although the median YOY sales price is down by 2.3% on last year, mortgage repayment amounts are up by 11.3%. Last year, approximately 28% of homes sold above list price, spending an average of just 37 days on the market. Conforming loan limits have increased – good news as jumbo loans have a higher interest rate. However, this won’t make any difference to those living in more expensive markets such as the East and West Coast states, where jumbo loans tend to be the only option available. As rates rise, mortgages become less affordable. The graph below shows how an increase of just 1% causes the mortgage repayment amount to jump up significantly:
What can clients do to help their transferees?
- Introduce a Sliding Scale Benefit, a one-time expense used to permanently buy down the interest rate on a new home.
- Introduce Mortgage Interest Differential Assistance (MIDA), which is designed to offset the impact of higher mortgage interest rate environments. It does this by reducing the gap between current market interest rates and the lower rates that transferees have on their current mortgage.
- Introduce an Interest Based Mortgage Subsidy, which slowly increases an transferee’s interest rate, giving them time to adjust and ease in to the higher mortgage payment environment. The subsidy is calculated based on the transferee’s mortgage note rate and loan amount, and the client pays the difference between the mortgage payment at the current note rate and the lower, subsidised rate.
- Introduce a Dollar Driven Mortgage Subsidy, which sees the client designating the dollar amount either for each individual transferee or for each level of transferee.
What are the benefits of each form of assistance?
- Sliding Scale Benefit: The client has complete control over the scale: they decide a) the rate at which it starts, and b) what mortgage discount points will be covered for each interval of the scale.
- Mortgage Interest Differential Assistance: The only subsidy that is based on the individual circumstances of each transferee.
- Interest Based Mortgage Subsidy: Gives the transferee time to adjust to a rising rate environment.
- Dollar Driven Mortgage Subsidy: Very well suited to a tiered policy.
Historically, subsidies have been calculated in comparison to the Fannie Mae 30-, 60- and 90-Day Rates. However, Fannie Mae have indicated that these rates will be scrapped in the near future, thus they recommend that employers remove them from their policies.