private mortgage

Helping the Kids Responsibly with Private Mortgages

Often a family member or child may need financial help.  This may involve the purchase or renovation of a home or some other need.  The person willing to may wish to help out but also wants to be repaid.  A solution may be a Private Mortgage.  This is where the parent loans the funds in a formal promissory note and uses a mortgage to secure payment.  This arrangement can have the following benefits:

  • Lower financing cost for the children compared to a commercial note & mortgage
  • Higher rate of return for the parents compared to certificate of deposit
  • Security for the parents in the event of default
  • The son or daughter can avoid many of the costs of a commercial loan & mortgage, including:
    • Origination fees
    • Inspections
    • Title insurance
    • Closing costs
  • A child with credit issues or unverifiable income may not qualify for a conventional loan
  • A Private Mortgage can protect the lender’s security from subsequent creditors’ liens
  • Parents can integrate the loan with their estate plan with debt forgiveness as part of the kid’s inheritance
  • If structured properly, the loan will not incur gift taxes
  • Flexibility, the note can provide for:
    • Interest only payments
    • Quarterly payments
    • Balloon payments
    • Payment upon the occurrence of a certain event

What you will need:

Promissory Note or Line of Credit Note

Mortgage Agreement

One Time Mortgage Tax to County Treasurer (sliding scale from 0.02% to 0.1% of the principal)

One Time Mortgage Certification to County Treasurer Fee $5.00

One Time County Clerk Recording Fee ($13 for 1st page and $2 for each additional page)

(A  $30,000 mortgage would cost about $55 in filing, certification and mortgage taxes.)

Expect about $500-700 for attorney’s preparation and review of documents.

Disadvantages:

Creation of a lender/borrower agreement may strain family relationships.

Foreclosure, if needed, can be expensive and damage family relationships

You must file IRS form 1098 and send a copy to the payer by January 31st of each year.

You must claim interest received as income.

Summary
Description
Private mortgages provide a way to loan money to family members with the security of a lien.
About Richard Winblad

Richard Winblad is a lifelong Oklahoma City Metro resident with a law practice focused on Elder Law and Estate Planning. His practice focus helping seniors and veterans by giving sound legal estate planning advice including Medicaid Estate Planning and Veteran’s Benefit Qualification. In 1984, Richard graduated from OSU with an undergraduate degree in Business he later sought and earned a Law Degree from the University of Oklahoma in 1992. His practice is based in Edmond and is held in a beautiful pre-statehood home close to UCO at 102 E. Thatcher. He is president of the Oklahoma City Commercial Lawyers Association, a group that provides legal an ethical training for attorneys. He is also a member of “Lawyers with Purpose”, an organization that provides in depth training and support to attorneys who practice in the area of elder law. He received an AV Preeminent® rating by his peers through Martindale-Hubbell® Peer Review Ratings™. Dedicated to educating the public, Richard does workshops and presentations all around the state for professionals and laypersons. These programs provide vital information to our veterans and seniors as they look forward in planning living and financial needs that fit their desires.

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