Family mortgage: the benefits + calculation example
Posted On July 13, 2019
A family mortgage is advantageous for parent and child: higher mortgage, lower monthly payments and more return on savings. Take out a mortgage with family.
Win-win situation parent and child
The house price is rising. In addition, the mortgage standards will be slightly stricter in 2019, which means more money is needed. At the same time, there may be family members whose own resources are ‘unemployed’ in a savings account, at a historically low interest rate.
With a family mortgage or family bank construction, a family member helps to finance the home. In addition to or as a replacement for a regular mortgage, a mortgage with family has been taken out. This allows the borrower to take on a higher mortgage against lower monthly payments. The lender can count on a higher return than on the savings account.
Family mortgage and the tax authorities
In addition to cost benefits, there are also tax benefits. Because interest is agreed with the family mortgage, the tax authorities do not see this as a gift. This can be tax-efficient if only a limited amount can be donated tax-free. Read more about donating for the purchase of a home.
The interest on a family mortgage is, under certain conditions, tax deductible for the borrower. For the tax authorities, the loan must meet the following requirements:
- The agreed interest must be in line with the market. *
- The loan must be repaid in 30 years and at least in the annuity.
- The terms of the loan must be laid down in writing.
With the family mortgage it is tax-efficient to agree on a high interest rate. However, there is a limit to this. The agreed interest must be in line with the market. Two court rulings provide more clarity on this. The first judgment concerns a loan without collateral (corresponding to a personal loan). The market-based interest rate at this family Egyptian hake was 8%. The second judgment is about an annuity loan with the home as collateral. The judge found an interest rate of 4.5% in line with market rates for this loan-to-donate construction.
Sample family mortgage calculation
The family bench construction
In 2019, son or daughter will buy a home of € 200,000 and will take out a mortgage of € 150,000 for this. The remaining € 50,000 is borrowed from the parents. The family mortgage is established as follows:
- A family bank interest of 3% is agreed for the parents’ loan. They therefore receive € 1,500 interest per year.
- This interest is fully deductible. The son or daughter therefore receives € 500 from the tax authorities.
- The parents donate € 550 of the interest back to the son or daughter.
Advantages family mortgage
The following benefits are achieved with the loan-to-donate construction of this family mortgage:
- The donation from the parents is not included in the maximum mortgage of the son’s daughter.
- Instead of a net interest charge of € 788 for a loan of € 50,000 (mortgage interest 2.5%), the son or daughter is € 338 cheaper.
- In the parents’ savings account at ING, the € 50,000 had yielded a maximum of € 25. With the family mortgage, the return is 950 (€ 1,500 minus € 550).
Advice on mortgage with family
These mortgage standards do not exist for nothing. It is advisable to have the mortgage charged on by a family adviser. In this way you ensure that the mortgage remains affordable now and in the future. He or she will also help you to put the family mortgage agreements on paper. This is very important to prevent disagreement about the loan. Ask for advice for your family mortgage without obligation.