For you as a lender, the money is not immediately available. Your son or daughter can only free the money by taking a higher mortgage for example;
If your son or daughter gets into payment problems due to unemployment, for example, you may also be affected;
There may be crooked eyes between the family if several children wish to borrow money for buying a house.
Situation at death
If you die as a lender, the mortgage will be transferred (claim). Unless other agreements have been made. This can be a simple situation if there is one child and one parent. Then the child inherits the claim upon the death of the parent. Only if the situation is different, for example 1 parent and 3 children and only 1 child has a mortgage with the parent.
In this situation the claim falls within the inheritance and the claim can be assigned to child 2 and 3. The old agreements will then be maintained, only with an interest rate review you will enter into negotiations with your brother (s) / sister (s) and that can produce a different dynamic.
For that reason, you could also consider taking out a separate life insurance policy and thinking carefully about the fixed-rate period. If you fix the interest for 20 or 30 years, for example, these agreements remain in force for a long time.
You can also decide to transfer the family mortgage to an external bank after the death. Then you can pay off the family mortgage with your brother or sister.
If you inherit as the only child, the loan lapses in a legal sense. That would also mean that you are no longer entitled to interest deduction. Your parents can solve this by taking a joint heir for 1%. This could for example be a charity. In this way the interest deduction does not lapse.
Step-by-step plan to set up a family bank
You can use the following guide when setting up your family bank and therefore lend money to your child (ren):
- Record everything in writing. This is useful both for the tax authorities and the notary, but also for your child. For example, if it has to deal with a relationship break or death situation;
- Use business standards and simulate as if you were providing a mortgage or loan as a real bank;
- To qualify for interest deduction, the loan or mortgage must be used for the owner-occupied home (purchase or refurbishment);
- The interest and repayment must actually be paid.