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minimum interest rate

Is ther a minimum interest rate you can charge on a owner contract note?

Thank You!

[size=9:0bab42f4c5][color=Red:0bab42f4c5][Email address deleted as per forum rules][/color:0bab42f4c5][/size:0bab42f4c5]

sunnyca2009's picture
sunnyca2009 | Joined: August 4, 2009 07:15 pm | Posts: 0 | Location: New Jersey | 00 Dollars($)

That would depned on the person who islending the money

Minimum would be 0%

Like | Dislike | Share | Posted: Fri, 02/05/2016 - 02:14 | Post subject:

manoj_gopale's picture
manoj_gopale | Joined: February 16, 2009 10:31 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

this is speculative one... there is certainly a cap for maximum ...but I agree with sunny that minimum will be 0 %.

keep in touch.....
:arrow: :arrow: :arrow:

Like | Dislike | Share | Posted: Fri, 02/05/2016 - 02:14 | Post subject:

gmakerley's picture
gmakerley | Joined: November 9, 2007 07:36 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

i don't understand why the question comes up. there's no reason for there to be a legal minimum. if someone chooses not to charge interest on a loan, that's perfectly legal in any event.

Like | Dislike | Share | Posted: Fri, 02/05/2016 - 02:14 | Post subject:

jveenstra's picture
jveenstra | Joined: November 10, 2008 09:03 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

If an owner is holding a note (mortgage) the interest rate on that mortgage is supposed to be a rate that is available in the market place for other mortgages.

There is a penalty for charging less.

Like | Dislike | Share | Posted: Fri, 02/05/2016 - 02:14 | Post subject:

gmakerley's picture
gmakerley | Joined: November 9, 2007 07:36 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

well, that's funny to me still, john. according to the state of connecticut department of banking (i just called), there is no minimum rate in connecticut. a 0.00% rate is perfectly acceptable.

i would hope, frankly, that other states would be as liberal in this policy. for example, how many sales are made each year in which a parent or other family member holds a zero percent mortgage...or charges interest and then gives it back to the borrower (son, daughter, etc.) after a period of time?

you cite "an owner" holding the mortgage, john - i didn't indicate who the holder of the mortgage would be in speaking with the banking department, but my thought, of course, is what would it matter? if i don't want a return on my investment, shouldn't i have the right to forgo it?

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jveenstra's picture
jveenstra | Joined: November 10, 2008 09:03 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

I just called the IRS. I do not know state regulations. Actually, I do not know federal government regulations. I was taught about 20+ years ago that any private individual could hold a mortgage and there was a minimum rate. I could not find what I was looking for, so, I called.

The minimum mortgage rate that an individual can establish if holding a mortgage is the Applicable Federal Rate (AFR)

Go to the IRS website: www.irs.gov

In the SEARCH box type: AFR

The AFR tables come up. The minimum rate a private mortgage holder can use is shown in the table by month for short and medium and long term loans. Long term is over nine years.
Use the rate published for the month the loan closes. So, if a private person were holding a 30 year mortgage this month, the minimum rate would be 4.03%.

Section 7872 if the IRS code discusses Below Market Rates. If a note holder charges below market rates, the note holder is charged with the interest income for the minimum rate that should have been charged and pays taxes on that intereest income.

So, if a zero interest rate was established by the note holder, the note holder would pay taxes on the interest income that would have been generated by the 4.03% rate even thogh no interest was actually paid by the terms of the zero interest note.

How would anyone be caught doing a zero ineterst rate mortgage note? I have no idea, but, there is a legal minimum.

Like | Dislike | Share | Posted: Fri, 02/05/2016 - 02:14 | Post subject:

gmakerley's picture
gmakerley | Joined: November 9, 2007 07:36 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

see, john, that's why we get along...you and i are similar in that we'll look up our information instead of just spewing it out like we see all too regularly. i don't have the time today to go through the irs' myriad regulations, but i did start to do so. it's too hard to navigate while i'm also trying to work, so i'll pass for now.

it's kinda hard to swallow - the thought that an interest-free loan would be taxable on the lender. you'd think that doing a good deed would at least be ignored, if not rewarded.

your last point, of course, is well-said. how does a non-reported 0% loan get tagged? who knows...i have to check with a guy i know who works for the irs to see if he can shed some light.

thanks for doing all the digging, john...this is an interesting topic.

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

George, I find most of the subjects interesting. There are far too many subjects for which I have no answer, so, I read the responses and try to learn--especially about other state regulations. Except, I read too many answers I do not trust, so, not learning as much as I hope to.

There is an obvious reason that you are a Mentor.

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sunnyca2009's picture
sunnyca2009 | Joined: August 4, 2009 07:15 pm | Posts: 0 | Location: New Jersey | 00 Dollars($)

John and George, you discussion was really helpful

Thanks for taking time to do the research

Like | Dislike | Share | Posted: Fri, 02/05/2016 - 02:14 | Post subject:

Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Can parents loan kids money from their home equity account to fund their home at the same rate that the bank charges which would mean no income for the parents. Just a pass through. Is this legit?

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gmakerley's picture
gmakerley | Joined: November 9, 2007 07:36 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

bankofmom - a great appellation i must say...you can certainly do what you wish on that type of transaction. essentially, what you're doing is just having the "kids" pay back the loan itself, and you're just a pass-through. i think it's a wonderful idea, frankly.

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Thanks

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