# Contingent Interest Mortgage Program for Junior (Untenured) Faculty (CIM-JF Program)

The CIM-JF program is a tax-efficient, minimum interest, second mortgage program to assist recently hired untenured faculty to purchase a home in the expensive local area housing market.

The CIM-JF will be secured by a mortgage on a qualifying residence.

The interest rate is capped at the Annual Long-Term Applicable Federal Rate in effect when the mortgage is closed. This is the lowest tax efficient rate that is allowed by the IRS.

## Eligibility

This program is available **one time only** to all new full-time junior (untenured) faculty members. The eligibility period is up to four (4) years from their date of hire to a faculty position.

## Qualifying residence

The MIT Faculty Housing Assistance Program (FHAP) is only applicable to a faculty member’s “principal residence” within a 100-mile driving radius of MIT.

** “Principal residence”** is defined by the IRS, under Section 121 of the Internal Revenue Code, using a facts and circumstances standard and considering, among other facts, where the faculty member resides most of the time, the address listed on the faculty member’s tax returns, voter registration, driver’s license, and automobile registration, the faculty member’s billing address and the faculty member’s principal dwelling throughout the academic year.

*Single-family residences, condominiums, co-operatives and some multifamily residences do qualify.*

Faculty may request approval to use the FHAP to purchase a multi-family property so long as:

- The faculty member’s residence constitutes 50% or more of the current appraised value
- Only the portion of the applicable value of such a property that is occupied by the faculty member as his or her principal residence may be considered in determining the Maximum Loan Amount for the CIM-JF program.

Note: Vacation homes, investment properties, and income properties are *not *qualifying residences.

## Term

10 years.

## Maximum loan amount

The lesser of **$200,000** or 60% of the “applicable value” of the property

The “applicable value” is the fair market value of that portion of the property that constitutes the principal residence of the faculty member. This is determined by the purchase price or as such value that is determined by a certified appraiser approved by MIT, whichever is less.

### Example: Single family, condominium, co-operative

Purchase Price/Appraised Value:

$333,334 x 60% = $200,000 is the Maximum Loan Amount for the CIM-JF program

$300,000 x 60% = $180,000 is the Maximum Loan Amount for the CIM-JF program

Therefore, to take advantage of the full $200,000, the minimum home purchase price is $333,334.

### Example: Multi-family residences

Purchase Price/Appraised Value = $600,000

Faculty member occupies 50%

Maximum loan amount for a CIM is based on the percentage the faculty member is occupying so 50% = $300,000

CIM cannot be more than 60% of the purchase price/appraised value –

$300,000 x 60% = $180,000 is the Maximum Loan Amount for the CIM-JF program

## Interest rate

Annual Long Term Applicable Federal Rate (AFR) in the month the mortgage is closed. This is the lowest tax efficient rate that is allowed by the IRS.

This interest rate is a fixed rate for the life of the mortgage.

The total interest due on CIM loans equals Fixed Interest (1/2 AFR) plus Contingent Interest. The resulting interest rate is therefore guaranteed to be no greater than the AFR and no less than ½ the AFR.

**Fixed Interest**: One half of the annual long-term AFR at the time the loan is made is the annual interest charged to the mortgage.

**Contingent Interest**: The effective interest rate of the mortgage is contingent upon the average, annual percentage of appreciation of the value of the property. This is configured at the termination of the loan and is determined by the value of the property at the time the CIM was made in relation to the value of the property at the time the CIM is paid off. This contingent interest will be no less than 0% and no greater than ½ AFR.

*Total Interest Due at the time the mortgage is paid off is determined as follows:*

*If the property depreciates over the life of the loan, then 1/2 the AFR is the effective (payoff) mortgage interest rate.*

*If the property appreciates over the life of the loan at an average, annual rate of 0% or above, up to ½ AFR, then ½ the AFR is the effective (payoff) mortgage interest rate.*

*If the property appreciates over the life of the loan at an average, annual rate greater than ½ AFR but less than the AFR itself, then that appreciation rate is the effective (payoff) mortgage interest rate.*

*If the property appreciates over the life of the loan at an average, annual rate greater than AFR, then the AFR itself is the effective (payoff) mortgage interest rate.*

Note: If the effective (payoff) interest rate is less than the AFR imputed income will occur. Therefore, if the payoff interest rate is less than the AFR the IRS considers the difference between the payoff interest rate and the AFR to be imputed income. This imputed income will be reported on the faculty member’s W-2 as income in the tax year it occurs. It will also be reported as mortgage interest paid on a 1098 Mortgage Interest Form in the same tax year.

As taxable income this imputed amount is also subject to normal Social Security and Medicare (FICA) taxes as well as Federal and State income taxes at the time the loan is paid off. Though Federal and State taxes will *not *be withheld the employee portion of the FICA tax for the imputed amount will be withheld from their regular pay. The faculty member is responsible for any income tax liability related to this imputed amount.

## Minimum monthly payments

There are two options for monthly payments available for the CIM-JF program.

- The minimum monthly payment required is a $1.00 Service Fee. This Service Fee is
credited to either principal or interest. Both the Fixed Interest and Contingent Interest are deferred to loan maturity or termination.*not* - A monthly payment equal to the Fixed Interest or ½ the AFR. The Contingent Interest is deferred to loan maturity or termination.

Note: Any contingent interest that is deferred accumulates and is compounded monthly.

## Principal payments

There are no requirements to make regular payments to the principal. The principal can be repaid as a “balloon” payment at the termination of the mortgage. However, payments to the principal can be made on the last day of any given month in increments of $1,000 or more.

## Refinancing

This mortgage cannot be refinanced, **except **upon the award of tenure, the CIM-JF may be refinanced to the CIM-SF so long as the faculty member remains eligible and the property remains qualifying.

The term for the CIM-SF will be 30 years from the start date of the CIM-JF.

## Termination

Principal and outstanding interest is due on the earliest of:

- The date of sale of the mortgaged property
- The date in which the property is no longer the faculty member’s principal residence.
- The date of termination of employment at MIT.