You may want to help a family member buy a home by making a loan to that person. That might to be the only way for a prospective homebuyer to get a decent interest rate these days.

As this was written, the national average rate for a 30-year fixed-rate mortgage was 6.81 percent. The average rate for a 15-year fixed-rate mortgage was 6.13 percent.1

If you are nice enough to follow through by making a loan to a homebuying relative, please make it a tax-smart loan that avoids unexpected, and generally adverse, federal tax consequences.

We will explain how, after first covering some necessary background information. Here goes.

Your Loan’s Interest Rate and the AFR

Most loans made to family members are called below-market loans. By that, we mean loans that charge either no interest or a rate below the IRS applicable federal rate, or AFR. The AFR is the minimum interest rate you can charge without creating unwanted federal-tax side effects for yourself.2

While today’s AFRs ... Log in to view full article.