I’m starting a new job at a university in the Boston area, and they’re offering a homebuyer assistance program for tenure-track faculty. The program provides the lesser of $300k or 40% of the home’s value. It can be used for things like a down payment or closing costs. The interest rate is fixed at the lowest federal rate, and there are no principal payments required. Instead, interest accrues and is deducted monthly from your paycheck (e.g., $300k loan at 4.52% = $1,130/month).
I’m not originally from the U.S., and my family didn’t own a home while I was growing up, so I’m still learning about this process. I’d appreciate any advice about the following:
What are the practical benefits of this program? Does it mainly help by reducing upfront costs?
Are there downsides beyond taking on more debt?
If I were to invest the $300k loan in a high-yield savings account earning 4% interest, would my effective interest rate on this loan drop to 0.52% (assuming a 4.52% loan rate)?
Make sure to read the fine print or talk to someone who can explain the details. Here are a few key things to find out:
When is the principal balance due, or is it forgivable?
What happens to the loan if you leave your job? Is it due immediately?
Interest-only loans usually mean the principal has to be paid eventually. Be careful about assuming you’ll never have to repay it, only to be surprised later if terms change.
University mortgage assistance programs are usually great deals. Just make sure you understand the terms. The rate is probably tied to the AFR (Applicable Federal Rates). If it’s fixed, that’s great, but check if it might float with changes in the AFR, which could work in your favor if rates drop.
Find out if this loan is tied to your employment at the university. If you leave, would you have to repay it quickly? Also, check if any part of it is forgivable over time.
For your third question, yes, your effective rate would be 0.52% if HYSA rates stay constant at 4%, but that’s a big assumption.
Your employer might require that the second mortgage funds be directly applied to your home purchase, rather than letting you keep it in savings or investments. You should confirm this with them.
What happens if you leave the university? Will you owe the full amount immediately? Is there a balloon payment? These are important details to check before deciding.