With a family mortgage it is possible to borrow money from your family. Are you looking for a house to buy and do you want people within your family to help you finance your dream home? Read more about the family mortgage in this article and discover everything about how borrowing money from family works for your mortgage. On this page you will find all the features, advantages and disadvantages of the family loan.
Family mortgage properties
A family mortgage is a loan with your house as collateral. This loan has also been popularly referred to as a family bank. This has to do with the fact that the mortgage comes from family rather than from an ‘ordinary’ lender. There are in fact two different options for setting up the family bank:
- You borrow the full amount you need to mortgage from family
- You borrow part from family and part from one of the commercial mortgage providers
Setup of family bank: the choice is yours
You can organize a family loan however you envision it. When you borrow the complete amount of the financing of the desired home from family, you have nothing to do with the acceptance conditions and maximum mortgage that apply with ‘normal’ mortgage providers. There is trust with family and therefore no assessment of your application is necessary. Submitting all kinds of documents, such as a employer statement, is therefore not necessary for a family loan. You can determine the ‘price’ of the loan in the form of mortgage interest, the term of the mortgage and the method of repayment in consultation with the family members.
It is not necessary to incur notary costs for a family mortgage. The family mortgage is often arranged as ‘private loan‘. The family and the recipient of the loan make their own agreements about the loan. Such a mortgage does not necessarily have to be registered with the notary, since usually no right of mortgage is established. It is of course important to make clear agreements about important topics. It is wise to have everything properly put on paper. With a good loan agreement, there is clarity to all kinds of stakeholders and the tax authorities about the repayment schedule of the loan. That way you also prevent problems and miscommunication within the family.
Parts of family mortgage loan agreement
There are a number of important topics that must be agreed upon in the loan agreement.
- Loan amount: how much money do you borrow;
- Monthly repayment: how much will you repay each month;
- Mortgage interest: how much interest will you pay;
- Term of the loan: how long will the loan last;
- Repay: when must the mortgage be repaid.
Family mortgage as a supplement
Another approach is to use the family mortgage as a supplement to a mortgage with a commercial mortgage provider. This has a number of advantages and is interesting for you, family and the lender. Because the risk is shared and less mortgage is needed, the ‘regular’ bank can offer a sharper interest rate. Borrowing money for the mortgage is cheaper than if the provider finances the entire mortgage.
If you want to take out a family mortgage as a supplement to a mortgage from a ‘normal’ provider, there are a number of rules that must be followed. This is because the lender will assess the application before obtaining the ‘normal’ mortgage. It will be checked whether you have sufficient income to be able to pay the monthly costs of both loans. The family mortgage thus results in a reduction of the maximum mortgage. After all, the lender takes the monthly costs of the family mortgage into account and wants a responsible mortgage lender to prevent excessive lending. Usually, providers of mortgages give a much sharper interest rate than with a standard mortgage when you borrow a large part through the family.
Family mortgage and conditions for mortgage interest deduction
The Tax Authorities have drawn up clear rules for borrowing from family or a mortgage from your own BV. In order to make use of mortgage interest deduction, there are a number of conditions that the family mortgage must meet. If you also want to take advantage of this, it is important to keep the following points in mind in most situations:
- You pay a mortgage interest to your family that is ‘in line with the market’;
- You repay part of the repayment during the term of the loan;
- You repay according to a fixed repayment schedule, minimum annuity, but linear repayment is also allowed;
- You must have repaid the family loan within a maximum of 30 years;
- You have recorded the family mortgage in writing;
- Every year you submit a statement to the tax authorities about the family mortgage with the annual income tax return.
As is apparent from the rules for mortgage loans from the Dutch Tax Authorities, more is possible if you already had a mortgage before 2013. If this is the case, you will be subject to the so-called transitional law for the deduction of interest on the home acquisition debt (mortgage interest deduction). This allows you to choose – albeit in close consultation with the family – which term the loan will have and which mortgage type (for example interest-only ) will have the loan. You will then remain entitled to mortgage interest deduction. In order to make optimal use of the tax options and to gain insight, it is wise to contact your mortgage adviser about the best set-up of the family mortgage for your personal situation to consult.
Family mortgage is good for you and for your family
A family mortgage is attractive to you. In practice, it means an edge over other buyers in the housing market. The family loan is also interesting for those you want to help. There are also plenty of benefits for family. In addition to the possibility and it is nice to be able to help a son or daughter with the realization of their housing wishes, there is also a pleasant side effect in the financial field. When your parents lend you money for a house, they receive a small reward. This is the mortgage interest on the family loan and is an attractive compensation. Chances are, the interest on a savings account will be less than if your parents put the money into the bricks of your new home. For your parents, the investment also means a better return.
It is important when determining the mortgage interest that it is in line with the market. That is a requirement to be eligible for mortgage interest deduction. As a result, the mortgage interest rate may not be much higher than the market interest rate prevailing at the time of taking out. If the mortgage interest on your family mortgage is higher than the market interest rate, the Dutch Tax and Customs Administration (Belastingdienst) can assess the mortgage in full or in part as a gift. And that ensures later claiming of gift tax. Therefore, pay close attention and ensure that a conclusive file is available.
Family mortgage with a gift
Similar to a ‘normal’ mortgage, you pay your debt with a family mortgage by repaying and a portion of the loan as mortgage interest. Failure to do so will have major tax consequences, as indicated above.
An interesting possibility is to donate a nice amount tax-friendly every year as a parent or other family members. A tax-free donation can save you a lot on the monthly costs. Parents regularly organize a set-up with a family bank, in which the interest received is ‘repaid’.
How do I know if a family mortgage is interesting for me?
There is a lot of competition going on in the current housing market. A family mortgage can therefore certainly be an interesting addition for starters. Does anyone in the family have a large piggy bank? In that case, it can certainly not be a bad idea to take a look at the possibilities of a family mortgage together with an adviser and to check what benefits can arise for both parties.
Discuss your situation with an advisor and ask for advice
Good to see whether the family loan is the best solution for you and your family. That depends on your situation and that of your family. It is also important to set up the loan and furnishing in the right way. The right design ensures that the loan remains affordable and financially attractive for you and your family.
Bliss Hypotheekadviseurs is happy to assist you and can help you both with this. We ensure that you continue to be entitled to mortgage interest deduction and we help you draw up the loan agreement and the associated repayment schedule. Make a no-obligation introductory appointment below, and we will help you further.
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