What is an acceptable interest rate for a loan between family members?
Friday, 30. July 2010
My dad has stated that he is interested in assisting me with a down payment for my first home. I look at this as an investment for him while helping me and assume that once I pull equity out of the property I can repay him plus interest. What is a reasonable interest amount for my father?
Ivanhoe Fats Says:
an alternative is to treat it as an investment and your dad gets that proportion of the selling price of the house when you sell
eg he pays 20,000 towards the purchase of 200,000 so when you sell at, say, 300,000 he get 30,000 back
that way he gets a share of the appreciation of the property and you don’t have to pay the interest
Carlos R Says:
5%, assuming you will be diligent, and faithfully make the payments.
Luke 6:37 Says:
5%
Melissa L Says:
Anything between the best deposit rate your dad could earn putting the money in a CD or money market account and the best rate you would have to accept to take out a loan for the same amount. Right now, you might be able to borrow at 8% and your dad may be able to get 5% return on a CD. Therefore anything between 5 and 8% benefits you both. Obviously the midpoint (6.5% in this example) would split the benefit equally.
Of course with family you may decide the need of one is greater than the profit of another and it is not unusal to have interest free loans or very low rates between family members.
Spock (rhp) Says:
at least 3% over the rate of inflation, compounded annually and adjusted for the rate of inflation annually.
pants Says:
5 percent sounds like a fun game, or the answer above me sounds like a yummy time.
Landlord Says:
If you pay him 5% and compound it monthly (too hard to do daily) you will give him about what he would get if it were in the bank. You both win, as he helps you without hurting himself and you can get started with homeownership.
skyler5599 Says:
In the long run, it may just be better to avoid any financial involvement within the family. In my experience, at least!