RHS administers three types of payment subsidies: interest credit, payment assistance method 1, and payment assistance method 2. Payment subsidies are subject to recapture when the borrower transfers title or ceases to occupy the property.
(a) Eligibility for payment subsidy.
(1) Applicants or borrowers who receive loans on program terms are eligible to receive payment subsidy if they personally occupy the property and have adjusted income at or below the applicable moderate-income limit.
(2) Payment subsidy may be granted for initial loans or subsequent loans made in conjunction with an assumption only if the term of the loan is 25 years or more.
(3) Payment subsidy may be granted for subsequent loans not made in conjunction with an assumption if the initial loan was for a term of 25 years or more.
(b) Determining type of payment subsidy.
(1) A borrower currently receiving interest credit will continue to receive it for the initial loan and for any subsequent loan for as long as the borrower is eligible for and remains on interest credit.
(2) If a borrower receiving payment assistance using payment assistance method 1 receives a subsequent loan, payment assistance method 2 will be used to calculate the subsidy for the initial loan and subsequent loan.
(3) A borrower who has never received payment subsidy, or who has stopped receiving interest credit or payment assistance method 1, and at a later date again qualifies for a payment subsidy, will receive payment assistance method 2.
(4) A borrower may not opt to change payment assistance methods.
(c) Calculation of payment assistance. Regardless of the method used, payment assistance may not exceed the amount necessary if the loan were amortized at an interest rate of one percent.
(1) Payment Assistance Method 2. The amount of payment assistance granted is the lesser of the difference between:
(i) The annualized promissory note installments for the combined RHS loan and eligible leveraged loans plus the cost of taxes and insurance less twenty-four percent of the borrower's adjusted income, or
(ii) The annualized promissory note installment for the RHS loan less amount the borrower would pay if the loan were amortized at an interest rate of one percent.
(2) Payment Assistance Method 1. The amount of payment assistance granted is the difference between the installment due on the promissory note and the greater of the payment amortized at the equivalent interest rate or the payment calculated based on the required floor payment. In leveraging situations, the equivalent interest rate will be used.
(i) The floor payment, which is defined as a minimum percentage of adjusted income that the borrower must pay for PITI: 22 percent for very low-income borrowers, 24 percent for low-income borrowers with adjusted income below 65 percent of area adjusted median, and 26 percent for low-income borrowers with adjusted incomes between 65 and 80 percent of area adjusted median; or
(ii) The annualized note rate installment and the payment at the equivalent interest rate, which is determined by a comparison of the borrower's adjusted income to the adjusted median income for the area in which the security property is located. The following chart is used to determine the equivalent interest rate.
When the applicant's adjusted income is:
Percentage of Median Income and the Equivalent Interest Rate
| Equal to or more than: | BUT less than: | THEN the equivalent interest rate is* |
|---|---|---|
| 00% | 50.01 of adjusted median income | 1% |
| 50.01% | 55 of adjusted median income | 2% |
| 55% | 60 of adjusted median income | 3% |
| 60% | 65 of adjusted median income | 4% |
| 65% | 70 of adjusted median income | 5% |
| 70% | 75 of adjusted median income | 6% |
| 75% | 80.01 of adjusted median income | 6.5% |
| 80.01% | 90 of adjusted median income | 7.5% |
| 90% | 100 of adjusted median income | 8.5% |
| 100% | 110% of adjusted median income | 9% |
| 110% | Or more than adjusted median income | 9.5% |
*Or note rate, whichever is less; in no case will the equivalent interest rate be less than one percent.
(d) Calculation of interest credit. The amount of interest credit granted is the difference between the note rate installment as prescribed on the promissory note and the greater of:
(1) Twenty percent of the borrower's adjusted income less the cost of real estate taxes and insurance, or
(2) The amount the borrower would pay if the loan were amortized at an interest rate of 1 percent.
(e) Annual review. The borrower's income will be reviewed annually to determine whether the borrower is eligible for continued payment subsidy. The borrower must notify RHS whenever an adult member of the household changes or obtains employment, there is a change in household composition, or if income increases by at least 10 percent so that RHS can determine whether a review of the borrower's circumstances is required.
[72 FR 73255, Dec. 27, 2007, as amended at 79 FR 28810, May 20, 2014; 84 FR 29038, June 21, 2019]
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