Recapture
The ABC's of Recapture
"Recapture" is a potential repayment of a portion of the interest savings that MFA has provided you through the lower interest rate loan. This requirement comes from the federal government. Before paying off your loan, you should be familiar with some of the basics.
First of all, there is only a potential that you may not have to pay any recapture at all. The federal law is intended only to recapture the interest savings from borrowers that are no longer in a position where they need the savings. Since the law has been in effect, it has been determined that the overwhelming majority of borrowers will never pay recapture.
If all of the previously mentioned conditions apply - the borrower may have to repay a portion of the interest rate subsidy they have been receiving on the mortgage. Under current MFA Mortgage$aver rates, the amount of recapture will never exceed the amount of interest savings the borrower has received as a result of using the program.
It is complicated to calculate the amount of recapture that a borrower would actually be subject to. The actual amount is computed by using a formula taking into consideration the following things:
- The date of sale or transfer of the home;
- The borrowers income in the year of the sale or transfer; and
- The amount of gain from the sale or transfer.
The MFA would be happy to provide you with additional information on how to calculate the actual recapture amount.
In order to illustrate how the recapture provision may affect a borrower, some examples are demonstrated on the reverse side to this pamphlet.
Payment of any recapture will only be required if all three of the following events occur:
- you sell the home during the first nine years of ownership; and
- you have a gain (net profit) on the sale of the home; and
- you experience substantial increases in your income
(your income must nearly double!)
Here's How It Works
Uncommon Scenario
John and Mary purchase a home in Las Cruces for $55,000 using an MFA Mortgage$aver loan. At the time they purchase the home their annual income is $25,000.
Six years later, they decide to sell their home (one of the worst years according to the recapture formula). They sell the home for $85,000 and their income has increased to $50,000 annually. They realized a gain of $25,000 on the sale of their home and their income has increased by 100%. As a result, these borrowers would have to pay approximately $2,500 to repay the amount of interest they saved.
As you can see, these conditions apply to very few families.
Common Scenario
Mark and Loretta purchase a home in Farmington for $74,000 using an MFA Mortgage$aver loan. At the time they purchase the home their annual income is $30,000.
Seven years later, they have one child and they decide to sell their home to move into a larger home. They sell their home for $100,000 and a net gain of 27%. In addition, their income has increased to $50,000 annually (an increase of 67%).
Wow! These borrowers have had some positive changes in their lives over the past seven years; however, they are not subject to any recapture at all.
As you can see, families may realize significant financial changes in their lives, beginning with the advantages of the MFA's loan programs, and not be required to pay any Recapture tax. Again, even if recapture does apply, it will not exceed the amount of interest rate subsidy on the loan. You owe it to yourself to investigate the potential advantages of low-interest loans from the MFA.
For more information about recapture, the MFA and its Home ownership Programs,
For more information contact one or our Mortgage Servicing Representatives
Mortgage Finance Authority
Main : (505) 843-6882
Fax: (505) 242-2766
