Interest rises in family mortgage

By Marilyn Kennedy Melia CTW Features

Home buyers are balking at today’s inflation-fueled high mortgage rates, while savers lament that many savings accounts aren’t earning enough to keep up with inflation.

Increasingly, families where some members have ample savings, and others can’t land or don’t want a highrate mortgage from bank or lending company, are finding a solution to both predicaments: Have the deep-pocketed relative provide the mortgage, at a rate lower than market, but still offering a competitive rate to make it worthwhile.

Despite these advantages, money and family can be a combustible mix. “The borrower could default, and that can get both financially and emotionally stressful for both involved,” notes Faron Daugs, a certified financial planner and CEO of Harrison Wallace Financial Group, Libertyville, Ill.

Still, if the intra-family loan is structured correctly it can work, notes Daugs. Here are some tips: Act [somewhat] like a bank.

Maybe a young home buyer has a good job, but his employment history or credit record are too new to pass muster with a traditional lender, but a family member feels confident in his earning potential. But the lending relative still needs to carefully “assess the credit worthiness” of the borrower, “especially if they are utilizing this as a fixed source of cash flow and income in their retirement,” says Daugs.

Keep loan amounts reasonable.

“Keep these family loans below ten to fifteen percent” of the total savings portfolio of the lending family member, advises Daugs.

Know tax rules.

Anytime money is given outright to an individual family member, it shouldn’t exceed the “gift tax limit” established by the IRS, which is $17,000 in 2023, requiring larger amounts to be extended as a loan. Plus, if a loan is over $10,000, “the lender must be earning interest on the loan equal to or above the proper ‘IRS Applicable Federal Rate,’ [which posts monthly, and was 4.34 percent in December 2022],” explains Timothy Burke of National Family Mortgage, a firm which manages functions like billing and recording deeds for family loans.

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Unfurnished

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Raspberry Ridge II Apartments, Subsidized Housing for Qualified Farm Labor families. Equal Opportunity Housing.

The Housing Authority of Skagit County operates 30 Townhouse apartments in Burlington WA. This advertisement has been placed in compliance with regulations of Washington State Housing Finance Commission Tax Credit Services.

Applications will be added to the waiting list. The waiting list is currently two years long. The Housing Authority of Skagit County is an equal opportunity provider and employer.

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