Loan to your only son — Will You Foreclose?
My husband is retired and I am close. A portion of our portfolio is in a money market earning .4 percent. Our son is about to build/buy his first home. We considered “loaning him” about $200,000 through a legal document charging the AFR for a 15 year loan. We thought the AFR would give him a better interest rate as bank loan rates continue to rise. What are your thoughts?
Terry Says
I think you should send your son to the bank immediately and let him take out a 15 year loan! Rates are still historically very low, probably under 3% if he has good credit.
Family loans are costly and should be documented. And they eventually cause problems. Almost always!! (Unless you are planning to foreclose when he says he can’t pay for any number of reasons!)
The only other alternative I see is to make a GIFT of the down payment. But make sure that won’t leave you short of cash in your old age. I guarantee you that by that time, the gift will be forgotten — and your son will have his own expenses to cover.
