Section 490. Increased interest payments

A. General. Increased interest payments are provided to compensate a displaced person for higher increased interest costs required for financing a replacement dwelling. The increased interest payment will be allowed only when the dwelling acquired by VDOT was encumbered by a bona fide mortgage which was a valid lien on such dwelling for not less than 180 days before the established eligibility date under Part VII (24VAC30-41-330 et seq.) of this chapter (usually date of initial offer to purchase). All bona fide mortgages on the dwelling acquired by VDOT will be used to compute the increased interest portion of the replacement housing payment. Home equity loans are valid mortgages on residential real property regardless of how the proceeds from the loans are used. Therefore, they must be included in the computation. In the case of a home equity loan the unpaid balance shall be that balance which existed 180 days prior to the initiation of negotiations or the balance on the date of acquisition, whichever is less. When the property is secured with an adjustable rate mortgage, the mortgage interest rate that is current on the property as of the date of acquisition will be used in the computation. The displaced person will be advised of the approximate amount of this payment as soon as the facts relative to the person's current mortgages are known. The payment will be made at the time of closing on the replacement dwelling, so that the new mortgage can be reduced.

B. Payment computation. The computation of the payment for increased interest costs will be the amount which will reduce the mortgage balance on the replacement dwelling to an amount which could be amortized with the same monthly payment for principal and interest as that for the mortgage or mortgages on the displacement dwelling. The amount of the increased interest payment will be computed by the district office, utilizing Library Form RW-66, based on:

1. The unpaid mortgage balances on the displacement dwelling; however, in the event the person obtains a smaller mortgage than the mortgage balance computed in the buydown determination, the payment will be prorated and reduced accordingly.

2. The remaining term of the mortgage or mortgages on the displacement dwelling or the term of the new mortgage, whichever is shorter.

3. The interest rate on the new mortgage which shall not exceed the prevailing fixed interest rate for conventional mortgages currently charged by mortgage lending institutions in the area in which the replacement dwelling is located.

C. To whom payment is made. The increased interest amount can be paid to the displaced individual or family. On written instruction from the displacee, it can be paid to the mortgagee of the replacement dwelling. Upon specific request, VDOT can make an advance payment into escrow prior to the displacee moving.

The following calculation shows how this increased interest cost is determined:

Example Increased Mortgage Interest Payment
FACTS:
	1. Outstanding balance – acquired dwelling mortgage	$43,210
	2. Outstanding balance – replacement	$47,000
	3. Remaining term, in months, acquired dwelling mortgage	212
	4. Term, in months, replacement dwelling mortgage	360
	5. Interest rate – acquired dwelling mortgage	7.5%
	6. Interest rate – replacement mortgage	8.0%
DETERMINATION:
	1. Monthly payment required to amortize a loan of $43,210 in 212 months at an annual rate of 7-1/2%	$368.38
	2. Amount of reduced loan having a monthly payment of $368.38 for 212 months at interest rate of 8%	$41,749
	3. Increased Mortgage Interest Payment: $43,210 - $41,749	$1,462

D. Partial acquisition.

1. When the displacement or the replacement dwelling is located on a tract larger than normal for residential use in the area, the interest payment will be reduced to the percentage ratio that the respective acquisition price bears to the value of the part of the property normal for residential use property, except the reduction will not apply when the mortgagee requires the entire mortgage balance to be paid because of the acquisition and it is necessary to refinance.

2. Where a dwelling is located on a tract larger than normal for residential use in the area, the total mortgage balance will be reduced to the percentage ratio that the value of the residential portion bears to the before value for computational purposes. This reduction will apply whether or not it is required that the entire mortgage balance be paid.

E. Multi-use properties. The interest payment on the multi-use properties will be reduced to the percentage ratio that the residential value of the multi-use property bears to the before value.

F. Other highest and best use. If the dwelling is located on a tract where the fair market value is established on a higher and better use than residential and if the mortgage is based on residential value, the interest payment will be computed as provided in the appropriate sub-section above. If the mortgage is obviously based on the higher use, however, the interest payment will be reduced to the percentage ratio that the estimated residential value of the parcel has to the before value.

Historical Notes

Derived from Volume 18, Issue 03, eff. November 21, 2001.

Statutory Authority

§ 25.1-402 of the Code of Virginia; 42 USC § 4601 et seq.