I work at a company that has an employee mortgage program. I recently found out a mistake was made on my loan note 2 years ago and to my benefit the loan note rate is now 0.859%. It’s based on a 5/5 ARM amortized over 30 years and with 2% caps on adjustments every 5 years with a lifetime cap at 5.859%.
The way our employee loan works is that it takes our company cost of funds and adds a small margin. Our company cost of funds have been steadily rising for the past year so that in October it will be 2.314%. On top of this rate for the past year or so all employees have had to pay imputed income due to the IRS rule on Applicable Federal Rate (AFR), the rate adjusts monthly and will be 5.03% so what happens is I accrue imputed income to make up the difference in what I’m paying in interest (2.314%) and AFR, 5.03%. What’s been happening steadily over the last year is that both my mortgage payment and imputed income has been rising so that I am now paying about $500 more a month between the mortgage rate rise and AFR.
Thinking about this issue I may have found a loophole but I wanted to check with others if there is anything wrong with it. My company has a policy where if I leave the company or if my primary residence is no longer where I have my home loan than I’m dropped from the employee rate and pay my note rate. In my case because of the bank error I have confirmed that I would than be paying 0.859% for the remainder of the 3 years I have before my first adjustment and at most 2.859% from years 6-10.
It just so happens that my girlfriend and I have talked about marrying sometime next year and I have been staying over at her place about 3 days a week. I was considering making my girlfriends place my primary residence thereby dropping me from the employee loan and eliminated AFR.
At this time I rent one of the rooms at my condo anyway but I’m thinking if I can do this I don’t have to rent out my own room but still use it to sleep at a few days a week if I need to. It appears the IRS definition of primary residence is the location I spend the majority of my time. If I changed it to my girlfriend’s place would I be correct in that now I could also take greater rental deductions such as the full HOA, depreciation, expenses because at this time I’m only taking half since I live in “half” the unit?
From what I can tell doing all of this is legal and within guidelines for work and the IRS. Am I not considering something here? I’ve also confirmed that it’s possible for me to sign back onto the employee program without refinancing as long as I’m still an employee so that option still remains open.
