# Contingent Interest Mortgage Program for Senior (Tenured) Faculty (CIM-SF Program)

The CIM-SF program is a tax-efficient, minimum interest, second mortgage program to assist newly hired or recently tenured faculty in purchasing a home in the expensive local area housing market.

The CIM-SF 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 newly hired full-time faculty members hired into a tenured position or existing faculty members promoted to a tenured position. The eligibility period is up to four (4) years from the date in which the faculty member received tenure.

Junior faculty members promoted to a tenured position, who have outstanding loans under the CIM-JF program, have the option to refinance these mortgages to the CIM-SF program so long as it is within the four (4) year period of eligibility.

## 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 applicable 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-SF program.

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

## Maximum loan amount

The lesser of **$550,000** 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 the first mortgage lender’s appraisal or by a certified appraiser approved by MIT, whichever is less.

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

Purchase Price/Appraised Value:

- $916,667 x 60% = $550,000 is the Maximum Loan Amount for the CIM-SF program
- $750,000 x 60% = $450,000 is the Maximum Loan Amount for the CIM-SF program

Therefore, to take advantage of the full $550,000, the minimum home purchase price is $916,667.

### Example: Multi family residences

Purchase Price/Appraised Value = $1,600,000

Faculty member occupies 50%

Maximum loan amount for a CIM is based on the percentage the faculty member is occupying so 50% = $800,000

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

$800,000 x 60% = $480,000 is the Maximum Loan Amount for the CIM-SF program

## Term

30 years.

## Interest rate

The 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 the CIM equals the 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.

### Calculating total interest due

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

A minimum monthly payment equal to the Fixed Interest or ½ AFR is required.

Note: Contingent Interest is deferred to loan maturity or termination. Deferred interest 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

The outstanding balance of a CIM-SF loan can be refinanced for a lower interest rate *one time only* during each 10-year interval of the mortgage term. The new interest rate will be at the prevailing Annual Long-Term AFR at the time of the refinance. The maturity date of the refinance will remain unchanged from that of the original mortgage.

Loan transaction expenses for the refinance will be borne by the borrower. This will include the cost of an appraisal, recording fee and any legal fees required to close on the refinance.

## 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.