Interest Rate Subsidies

DESCRIPTION:

  • Interest rate subsidies decrease interest expense to the borrower.
  • The subsidies come in two forms:
    1. Direct cash grants to reduce a lender's interest rate; and
    2. Pass-through of below-market-rate funds to qualified borrowers.

FUNCTION:

  • Interest rate subsidies increase project cash flow by decreasing expenses.

QUALIFICATION AND USE CRITERIA:

  • Qualified projects must: create or retain jobs; create affordable housing units for low-income tenants, first time home buyers or the elderly; improve areas which qualify as low- to moderate-income; or provide other approved public benefits.

PROGRAM STRUCTURE:

  • Interest rate subsidies are generally negotiated with the provider of the subsidy and are often used in conjunction with other enhancements. A common tie is with subordinated mortgages.
  • Subsidies may be limited to loans or grants from non-bank sources.

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