What it means
When a company asks an employee to move cities or countries, the move can cost far more than the removal van. The employee may have to sell a home in a hurry, pay fees on both ends, and take on a larger loan in an area where houses are more expensive.
A relocation mortgage tries to ease that burden through better terms than the employee would get on the open market. Employers usually work with a bank or a specialist relocation company to offer the product.
Typical features include a discounted interest rate for the first few years, waived arrangement fees, a quicker approval process and sometimes a bridging loan (a short-term loan that covers the gap between buying the new home and selling the old one). The employer may pay part of the cost directly or negotiate a corporate rate with the lender.
For a company, relocation support is a recruiting and retention tool as well as a cost. Offering help with housing makes it easier to persuade strong candidates to move for a role, and it reduces the chance that they leave soon after arriving.
Finance teams budget for it as part of the total cost of a transfer and often cap the amount per employee. Tax treatment matters.
In many countries, a below-market interest rate or a cash contribution from an employer is treated as a taxable benefit for the employee, and the employer may have payroll obligations on it. The rules vary a great deal between jurisdictions, so HR and finance should confirm the treatment before announcing a policy.
Employees should read the small print. Some employers require the employee to repay part of the support if they leave within a set period, and the discounted rate may revert to the market rate after a few years.
A relocation mortgage can be an excellent deal, but only when its limits and conditions are understood.
In practice
Real-world examples.
Example
A pharmaceutical company transfers a senior chemist from Boston to Chicago. It arranges a relocation mortgage with a partner bank at a discounted rate for three years and covers the arrangement fee. The chemist accepts the transfer without having to take a financial hit.
Example
A technology start-up hires a data scientist from another country and wants to remain competitive with larger employers. It negotiates a corporate mortgage product with a local lender that offers faster processing and a lower deposit requirement. The arrangement costs the start-up little, but it makes its offer far more attractive.
Example
A hospital group asks nurses to relocate to a rural area with a staff shortage. It offers a bridging loan and a mortgage rate discount, and requires staff to stay for at least two years or repay part of the benefit. The scheme fills vacancies that salary alone had not managed to fill.
Formula
Calculation
Value of rate subsidy = (Monthly payment at market rate - Monthly payment at subsidised rate) x Number of months
Suppose an employee takes a $400,000 mortgage over 30 years. At a market rate of 6% the monthly payment is $2,398.20, and at a subsidised rate of 4.5% it is $2,026.74, both worked out with the standard loan payment formula. The monthly saving is 2,398.20 - 2,026.74 = $371.46. If the subsidy lasts three years, the total value is 371.46 x 36 = $13,372.56, which is the cost to the employer of the benefit (before any tax effects).Case study
Seen in the real world.
Ironbridge Engineering is an illustrative, fictional manufacturer that opened a new plant in a region where house prices were 30% higher than at its headquarters. The first group of transferred engineers complained that they could not afford to buy homes near the plant, and three of them resigned within six months.
The finance director worked with a bank to create a relocation mortgage with a rate discount of 1.5 percentage points for three years. The cost was estimated at about $13,000 per employee and was capped at $15,000.
The company budgeted for 40 transfers, giving a total cost near $520,000. Resignations among transferred staff fell to almost nothing, and the illustrative lesson was that spending on relocation support is often cheaper than replacing skilled staff.
Watch out
Common mistakes.
- Treating the discounted rate as permanent, when the rate often reverts to the market level after the subsidy period ends.
- Overlooking the tax treatment of the benefit, which may create an unexpected tax charge for the employee or a payroll cost for the employer.
- Ignoring repayment clauses that require the employee to pay back support if they leave the company within a set period.
Questions
People also ask.
Who pays for a relocation mortgage subsidy?
Usually the employer pays the cost, either directly or through a negotiated corporate rate with the lender, although the details differ between companies.
Is a relocation mortgage different from a normal mortgage?
The loan itself works in the same way, but the terms, fees, speed of approval and support such as bridging finance are tailored to people who are moving for work.
Can self-employed people get one?
Generally no, because the product is tied to an employer relationship, although some lenders offer special terms to people moving for business reasons.
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