Do you want to give your adult child a leg up in buying their first home? Consider offering them a mortgage loan. Starter homes are still in short supply. Prices remain high and now mortgage rates are considerably higher than a year ago. If you have the financial means to do so, lending money to family instead of having them go through a bank can save them 2%-3% in interest. That lowers the monthly mortgage and interest payment considerably.
Make sure you look up the current AFR (Applicable Federal Rate) when making a loan, document the loan, and report the mortgage interest received on your tax return. The IRS sets minimum interest rates on intra-family loans because they don’t want you to use a loan to get around gifting limits. You can find those interest rates here – https://www.irs.gov/applicable-federal-rates. In April, you could make a long-term loan for right around 4%. That sure beats paying closer to 7% interest to a bank.
If you have questions, you know where to find me.
About the Author: John O’Connor
John has more than ten years experience as an Investment Advisor. He focuses on devising and maintaining portfolios that meet individuals’ needs, investment research, and investment strategy. John has been recognized as a “FIVE STAR wealth manager” by Twin Cities Business Magazine 2016-2022. He is a CFA charterholder and CERTIFIED FINANCIAL PLANNER™ Professional.
Legal Disclaimer: These posts do not constitute an offer or recommendation to buy or sell any securities or instruments or to participate in any particular investment or trading strategy. They are for informational purposes only. CTW gathers its data from sources it considers reliable. However, CTW makes no express or implied warranties regarding the accuracy of this information or any opinions expressed by the author and may update or change them without prior notification.