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MAKING MORTGAGE LENDING A FAMILY AFFAIR- NY Times Nov. 5,2010

This is a fabulous article on how create a winning strategy for parents to help their kids to get a mortgage and the idea is simple: Your kids get out of school and are ready to buy their first home.  They go to a lender and get pre-approved to buy their first home at let’s say 4.75%.  Instead the parents give the loan and get 4.75%, a higher rate of return than is offered by a traditional savings vehicle like a savings account.  Then the monthly payment to mom and dad will help them in their retirement.  “With credit tight and interest rates at historic lows, such intra-family loans can be a win-win for parents and children.”  Of course you should first consult your financial planner or accountant, but “to avoid tax consequences, the parents will med to charge an interest rate for loans with a set term that is at least what the government’s applicable federal rates are at the time the loan is created.” This helps parents lower the risk of gift tax and other tax consequences.   The loan should be documented as formal promissory notes that state the loan’s terms and what happens if not repaid. If the paperwork is registered the borrower can legally deduct annual interest payments.  For further details I suggest you read the entire article which is excellent:

Making Mortgage Lending a Family Affair

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