loan $1000,000. to a person, can i charge more than 10% inte

redroberts · Joined: 19 Mar 2008 Posts: 1 1.37 Dollars($)

I have been asked to loan a person $100,000. because he is building a house in Utah valued at approximately one million dollars. It would take him an estimated year and a half to repay his loan to me. I would get the cash from my personal residence HELOC, current interest is 6.19% but could go as high as 18% rather quickly. If I loan him the $ at 10%, without stating in the contract that if my interest increases, could I pass that percentage increase on to him? Or could I just charge him a higher rate of lets say 15% from the start?

helping_user

No, this would be illegal. You need to state in the contract what interest rate you'll charge and whether you'll pass on the percentage interest to the borrower. Either you state this on the contract or else you charge the higher rate right from the beginning.

Thanks.

charlesarmbruster · Posted: Thu Mar 20, 2008 11:38 am Post subject:

Don't do it -- unless you can get your name on the Deed, you are jeopardizing your future. You want to be able to own this property and the construction on the lot in the event that this 'borrower' (friend or family) doesn't complete the project or cannot make the payments to you. In that case, you would be able to have someone complete the home, and then sell it for a profit.

You would stand better buying the lot yourself, contracting this person to build the home, or paying him to do so while using a licensed contractor. You can get a short term construction loan to pay the on-going labor and material costs. The interest rate will be less volatile, too.

Then, you can sell it to him for just enough to cover costs (hopefully, he will have been making payments throughout) -- and, he can have the equity.

A personal contract for 100,000 dollars to someone who may/may not own any property or have any collateral is dangerous, I think. Unless this person has experience building homes, I'd be wary.

kpatrick · Posted: Thu Mar 20, 2008 1:45 pm Post subject:

Great advice Charles! As he said, there are better ways to do this, help your friend and not put yourself into potential financial danger.

All times are GMT - 7 Hours

Page 1 of 1