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minimum interest rate

Posted on: 03rd Oct, 2009 08:46 pm
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]
That would depned on the person who islending the money

Minimum would be 0%
Posted on: 04th Oct, 2009 09:26 am
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:
Posted on: 04th Oct, 2009 09:42 am
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.
Posted on: 05th Oct, 2009 09:25 am
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.
Posted on: 05th Oct, 2009 10:53 am
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?
Posted on: 05th Oct, 2009 11:13 am
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:

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.
Posted on: 05th Oct, 2009 12:53 pm
see, john, that's why we get 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.
Posted on: 05th Oct, 2009 01:27 pm
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.
Posted on: 05th Oct, 2009 01:35 pm
John and George, you discussion was really helpful

Thanks for taking time to do the research
Posted on: 05th Oct, 2009 08:59 pm
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?
Posted on: 01st Dec, 2009 02:45 pm
bankofmom - a great appellation i must 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.
Posted on: 02nd Dec, 2009 07:28 am
Posted on: 16th Apr, 2010 11:22 am
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