Every company mentions clearly in its offer letter to all employees that the location of the job could be at any place depending on the requirement of the company. In most cases, this clause is inserted just to cover all bases. No company likes to relocate its employees unless it is absolutely necessary. For employees, too, every relocation is a painful and time-consuming process involving many hassles and costs, so they prefer to get relocated as few times as possible.

When a company relocates an existing employee or when it wants to offer a job to a new employee but need them to relocate, they often face a difficult situation because an employee would not be very inclined to relocate. So, organizations compensate employees in some or the other way when they ask them to relocate. There are several ways in which this is done—offering one-time relocation bonuses or offering a raise, which would mean an increased salary or a relocation mortgage. Let us take a closer look at relocation mortgages.

The employer offers a loan to the relocating employee specifically for buying a house in the new location without having to sell off their house at the existing location. The money is simply used to close the existing mortgage. Let us understand how. Say the employee has bought a house at Location A, where they are based currently, and the employer wants them to relocate to Location B. However, the existing house is under a mortgage, and if the employee moves to Location B and wants to buy a property there, they would need a bridging loan to cover the difference.

You Might Also Like:  6 Ways To Buy A House Without A Mortgage

If it sounds a little complicated, that’s because it is. The lender or the bank would need to assess the value of the existing property as well as the new one, calculate the number of months in which the older property can be sold off, and then decide on the loan amount as well as the rate of interest. The bank would also need to decide the tenure of such a loan, depending on how soon the older property can be sold off. When the older property is finally sold off, the money received is used to clear the relocation loan. However, if the proceeds from the sale are more than the relocation amount, the excess is used to cover a part of the newer loan.

If the employee needs to opt for a relocation loan as a bridge, it becomes very difficult for them to service two loans (the new loan as well as the relocation loan) together in a new place (where they would incur additional expenses initially). This is why companies generally offer to bear the burden of the relocation loan so that the employee is incentivized to move to the new location. It’s a win-win situation for both the employee and the employer.

Keep yourself updated with the latest on  Mortgage . Like us on  Facebook  and follow us on  Twitter  for more on Investments.