Family Loans For Affordable Home
Loan Interest Rates

With the current national average interest rates for 30-year and 15-year fixed-rate mortgages at 7.73 percent and 7.02 percent, respectively, family loans can offer a much more attractive alternative. 

How so? By charging the Applicable Federal Rate (AFR) as interest, you can give the borrower a good deal without giving yourself a tax headache. 

AFRs for Term Loans

The IRS issues new AFRs for term loans every month. The rates for November 2023 are as follows:

Short-term loan (three years or less): 5.3 percent
Mid-term loan (over three years but not more than nine years): 4.69 percent
Long-term loan (over nine years): 4.83 percent

If you charge less than the AFR, you may need to navigate some tax complications. However, charging at least the AFR for a term loan to a family member allows you to avoid federal income tax and federal gift tax complications. 

Two tax-law exceptions, the $10,000 and $100,000 loopholes, can help you avoid these complications, although they may not be suitable for all home loans.


It is crucial to document the loan with a written promissory note and secure it with the borrower’s home for them to claim deductions for qualified residence interest expenses. Make sure the borrower signs the note and that the note includes details such as the interest rate, a schedule of interest and principal payments, and any security or collateral for the loan.

At the time you make the loan, it's also a good idea to write a memo to your tax file, documenting reasons it seemed reasonable to think you would be repaid. Again, this supports your contention that the transaction was always intended to be a loan rather than a gift.

If you keep written financial books- such as a personal balance sheet- show a loan receivable on the asset side of your ledger. Then do the necessary bookkeeping to track interest payments, principal payments, and reductions in the loan balance.

Main Points

Family loans can provide homebuyers with better interest rates than commercial lenders offer, especially if family members charge the AFR. Remember to consider the loan terms and tax consequences when structuring the loan.

If you would like guidance on more tax savings tools like this one, click here to schedule an appointment with one of Gold Standard's seasoned tax accountants.

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