Relocation Mortgage (Relo) Definition

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Relocation Mortgage (Relo) Definition

What Is a Relocation Mortgage (Relo)?

The relocation mortgage (relo) is a kind of alternative mortgage product created specifically for moving and moving personnel. These loans are used by corporations as a component of hiring agreements or signing bonuses for senior-level personnel. Relo mortgages make relocating more convenient and affordable.

Key Takeaways

  • Relocation mortgages (relos) are a specific class of alternative mortgage products created with staff relocation and transfer as part of an incentive in mind.
  • Employer financial contributions are a common component of relocation mortgage packages. These contributions may take the form of interest rate buydowns, closing cost subsidies, and below-market interest rates.
  • Relocation loans are categorized as special-feature mortgage loans, along with cooperative share loans and specific buy-down loans.

Understanding Relocation Mortgages

Employer financial contributions are a common component of relocation mortgage packages. Closing cost subsidies, interest rate buy-downs, and below-market interest rates are a few examples of these contributions.

A specialist team of home loan experts equipped to handle the requirements of relocating workers who are purchasing or selling a property may also be made available by the lender. This may lead to more expedient and affordable loan processing.

Lenders may provide closing cost reductions of 0.25% or a 25 basis point (equal to 0.25%) discount on mortgage rates for relocating borrowers.

A basis point is equal to 0.01% (1/100th of 1%), so keep that in mind. As an example, the new rate would be 4.75% if the 4.5% interest rate increased by 25 basis points.

Employee Moving with Relocation Mortgages

According to some research, a worker who relocates for job is likely to move again and again at regular intervals, typically twice within a five-year period. Unless they expect a year or more of employment in the new site, a company is unlikely to assist with a worker’s transfer. Therefore, these purchasers could be less inclined to refinance early on in the loan’s lifespan.

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Additionally, during the time of the assistance, which is often early in the loan’s life, employment subsidies normally decrease the borrower’s monthly payment and lessen their susceptibility to rate-related refinancing.

Because of the natural cycles of movement among these borrowers, prepayments tend to stay relatively quicker after the first one or two years even if interest rates climb. If interest rates drop, the company could utilize forced refinancing terms to induce the employee to refinanced the loan.

Investing in Relocation Mortgage Pools

Relocation mortgage-backed securities are provided by Fannie Mae (MBS).All of the underlying properties in this pool are loans for relocation. However, relocation loans are regarded as special-feature mortgage loans, along with cooperative share loans and certain buy-down loans. There are restrictions on the total number of properties that may be included in the qualifying pools since these loans have particular features.

Loans for relocation may also be a part of other pools. The pool prefix will designate a fixed-rate pool as a relocation loan pool if it includes more than 10% relocation loans, and the pool statistics section of the prospectus supplement will display the proportion of relocation loans in the pool.

Prepayment of the buyer loan is a possibility with any pool of mortgage-backed securities. For traders, being able to anticipate this risk is very valuable. The more predictable prepayment feature of relo mortgages makes it possible for relo mortgage-backed securities to trade at a premium. Compared to non-relocation mortgages, relocation mortgages have more predictable prepayment risk characteristics.

Relo mortgage-backed securities have traditionally repaid more quickly than comparable conventional products in the majority of interest rate situations, and they may also provide investor protection in conditions with increasing interest rates.

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