Finance

Have Finance Questions? Ask a Financial Expert Online.

Ask an Expert,
Get an Answer ASAP!

Finance
This answer was rated:

When calculating the minimum interest that can be applied to

a loan intended for the...
When calculating the minimum interest that can be applied to a loan intended for the purchase of a residence, does one choose the regular AFR, or the Adjusted AFR, and what is the difference? I am about to receive a loan from a family member, who wants to charge me 2% interest, and was told by a different lender that 4.61% is the current minimum. Can we not write up the mortgage at 2.15% as a mid-term loan?
Show More
Show Less
Ask Your Own Finance Question
Answered in 5 hours by:
4/9/2009
Ed Johnson
Ed Johnson, HR & Business Operations Consultant
Category: Finance
Satisfied Customers: 10,760
Experience: Central Michigan University, MSA Candidate; Global Compensation Operations Mngr; AA Degree Lib Arts
Verified

DearCustomer

 

I can not speak to precisely whay the mortgage person would off you that figure of 4.61 at the current rate, except that minimum can fluctuate day to day.

 

The IRS AFR is a different figure than the one used by the commercial lender who follows the interbank rates. However he may have been quaoting from the AFR as well, because 4.61 is close to the AFR rate listed in the March and April publications. Most mortgages are considered long term.

 

The IRS holds you to the minimum interest listed in the monthly AFR. That publication changes evey month.

 

Go by the AFR Rate for your loan period and compounding frequency.

 

this is the table you should be using If you close on the loan in:

 

MARCH http://www.irs.gov/pub/irs-drop/rr-09-08.pdf

APRIL: http://www.irs.gov/pub/irs-drop/rr-09-10.pdf

 

Mid term are loans of 3 but not more than 9 years.

 

long term are loans of more than 9 years.

 

You select the table you will be using, (if less than 250,000 table one) and then select the AFR. To the left of the AFR is a figure tha says 110% etc of the AFR. You multiple the AFR by that percentage to get the actual interest to charge.

 

 

 

 

Ask Your Own Finance Question
Customer reply replied 8 years ago
Hi Edward,

Thanks for your response and the IRS resource. I am still a little unclear: You said "if less than 250,000 table one," however the loan amount is for more than $250,000 by a little more than double. In that case, which table do I use? Also, do we have to charge some percentage more than the minimum AFR (the 110%), and if so, how do we know which percentage to choose for the actual interest to charge?

And finally, if we decide to do a mid term loan to take advantage of the lower AFR, would that red-flag us with the IRS or could it come back to bite us in the ass, since most mortgages tend to be long term?

Thanks again - we are closing in a few days, and we were surprised to learn of all of these road blocks. My parents have given plenty of loans to others in the past, but they are in Canada, where the laws are different.


Dear Frustrated,

 

Ok let me make this easy for you.

 

use table 1 (because this is the classification of your loan and purpose)

 

us in the long term section, under the compouding column you choose for your loan instrumet. (you can pick, etc. I recommend monthly, but you may choose annual, etc.)

 

Use the top line only, NOT the ones with the percentages. the line across the top that says AFR with no precentage. (this will meet the requirements of the IRS)

 

The commercial lender would use a diffent table and lines. Forget what I said about the 250,000 loan.

 

If you write a note for a 9 year or less note, you can choose the lower midterm rate, and it will not raise a flag. If it did, the IRS would want to see the note, and as long as the note was for a 9 year loan, then it would be ok.

 

Ed Johnson
Ed Johnson, HR & Business Operations Consultant
Category: Finance
Satisfied Customers: 10,760
Experience: Central Michigan University, MSA Candidate; Global Compensation Operations Mngr; AA Degree Lib Arts
Verified
Ed Johnson and 87 other Finance Specialists are ready to help you
Ask your own question now
Ask Ed Johnson Your Own Question
Ed Johnson
Ed Johnson
Ed Johnson, HR & Business Operations Consultant
Category: Finance
Satisfied Customers: 10,760
10,760 Satisfied Customers
Experience: Central Michigan University, MSA Candidate; Global Compensation Operations Mngr; AA Degree Lib Arts

Ed Johnson is online now

A new question is answered every 9 seconds

How JustAnswer works:

  • Ask an ExpertExperts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional AnswerVia email, text message, or notification as you wait on our site. Ask follow up questions if you need to.
  • 100% Satisfaction GuaranteeRate the answer you receive.

JustAnswer in the News:

Ask-a-doc Web sites: If you've got a quick question, you can try to get an answer from sites that say they have various specialists on hand to give quick answers... Justanswer.com.
JustAnswer.com...has seen a spike since October in legal questions from readers about layoffs, unemployment and severance.
Web sites like justanswer.com/legal
...leave nothing to chance.
Traffic on JustAnswer rose 14 percent...and had nearly 400,000 page views in 30 days...inquiries related to stress, high blood pressure, drinking and heart pain jumped 33 percent.
Tory Johnson, GMA Workplace Contributor, discusses work-from-home jobs, such as JustAnswer in which verified Experts answer people’s questions.
I will tell you that...the things you have to go through to be an Expert are quite rigorous.

What Customers are Saying:

I really was impressed with the prompt response. Your expert was not only a tax expert, but a people expert!!! Her genuine and caring attitude came across in her response...

T.G.WMatteson, IL

I WON!!! I just wanted you to know that your original answer gave me the courage and confidence to go into yesterday's audit ready to fight.

BonnieChesnee, SC

Great service. Answered my complex tax question in detail and provided a lot of additional useful information for my specific situation.

JohnMinneapolis, MN

Excellent information, very quick reply. The experts really take the time to address your questions, it is well worth the fee, for the peace of mind they can provide you with.

OrvilleHesperia, California

Wonderful service, prompt, efficient, and accurate. Couldn't have asked for more. I cannot thank you enough for your help.

Mary C.Freshfield, Liverpool, UK

This expert is wonderful. They truly know what they are talking about, and they actually care about you. They really helped put my nerves at ease. Thank you so much!!!!

AlexLos Angeles, CA

Thank you for all your help. It is nice to know that this service is here for people like myself, who need answers fast and are not sure who to consult.

GPHesperia, CA

< Previous | Next >

Meet the Experts:

Rakhi Vasavada

Rakhi Vasavada

Financial and Legal Consultant

2,608 satisfied customers

Graduated in law with Emphasis on Finance and have have been working in financial sector for over 12 Years

Megan C

Megan C

Certified Public Accountant (CPA)

2,218 satisfied customers

Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level

Manal Elkhoshkhany

Manal Elkhoshkhany

Tutor

1,920 satisfied customers

More than 5000 online tutoring sessions.

JKCPA

JKCPA

CPA

844 satisfied customers

Bachelors degree and CPA with Accounting experience.

Eric

Eric

Financial Manager

559 satisfied customers

Loan servicing, counseling and real estate expert. Foreclosure Expert and Financial Planner.

R. Klein, EA

R. Klein, EA

Accountant

480 satisfied customers

TurboTax Expert. QuickBooks Certified Pro Advisor

Dimitry K., Esq.

Dimitry K., Esq.

Attorney

332 satisfied customers

NASD Licensed Rep, 1997-2001, Business Attorney

< Previous | Next >

Related Finance Questions
Is rental income treated separately from normal income
Is rental income treated separately from normal income earned through a w2 or s-corp?For example: if $10,000 in rental income is accrued, this amount is put into the relevant tax bracket that taxes th… read more
NPVAdvisor
NPVAdvisor
CFP Licensee and Practitioner
Master's Degree
180 satisfied customers
If the U S Government shuts down what does that do to VA
If the U S Government shuts down what does that do to VA Bennifits and Social Security? I am a 100% service connected veteran … read more
Carter McBride
Carter McBride
LLM
265 satisfied customers
My dad passed away last June. Do I have to file income tax
My dad passed away last June. Do I have to file income tax for him before June and for his estate after his death? … read more
LEV
LEV
Retired
Bachelor's Degree
14,896 satisfied customers
I have a question about capital gains tax on a home. Selling
I have a question about capital gains tax on a home. … read more
NPVAdvisor
NPVAdvisor
CFP Licensee and Practitioner
Master's Degree
180 satisfied customers
I wanted to know if you can help me with my W4 form. I just
Hello - I wanted to know if you can help me with my W4 form … read more
Barbara
Barbara
Enrolled Agent, Paralegal
3,808 satisfied customers
I live in Wisconsin and my questions has to do with my
I live in Wisconsin and my questions has to do with my current rental property. I bought the "current rental" my first home approximately 11 years ago and from 2006 - 2013 it was my primary residence … read more
LEV
LEV
Retired
Bachelor's Degree
14,896 satisfied customers
Will here from OKC OK My Question is about Finance What is
Hello Will Johnson here from OKC OK My Question is about Finance What is allowed on my Balance Sheet I own a Real Estate Management Company And I have 42 Clients that I have Sold Investment Grade Real… read more
NPVAdvisor
NPVAdvisor
CFP Licensee and Practitioner
Master's Degree
180 satisfied customers
I am 65 years old, with 35000 credit card debt. i have
i am 65 years old, with 35000 credit card debt. i have retired already, but working another job and I plan to retire completely in 2 years, if my health holds up. I have savings of 36000 dollars, and … read more
LEV
LEV
Retired
Bachelor's Degree
14,896 satisfied customers
I am preparing the 1099 forms for my contractors. I lived in
I am preparing the 1099 forms for my contractors. I lived in Texas 10 months and the last two months of 2017 moved to California. While preparing the forms I ran into two dilemmas: Shall I use my Cali… read more
LEV
LEV
Retired
Bachelor's Degree
14,896 satisfied customers
Lev ,can I ask you about another scenario ,based upon the
Hi Lev ,can I ask you about another scenario ,based upon the rent issue ,but this time with me selling the houses… read more
LEV
LEV
Retired
Bachelor's Degree
14,896 satisfied customers
Could someone do some maths calculations for me in relation
Could someone do some maths calculations for me in relation to how much my rent might cost versus other income I have .I'm not very good at maths… read more
LEV
LEV
Retired
Bachelor's Degree
14,896 satisfied customers
I made $150K in 1099 self employed income. I am a real
I made $150K in 1099 self employed income. I am a real estate agent. I ran the numbers through turbo tax and they said I owe $36K to the Feds and $4K to the state. I file head of household with 2 depe… read more
Chad EA, CFP ®
Chad EA, CFP ®
IRS Enrolled Agent, CFP(R),
Master\u0027s Degree
1,084 satisfied customers
I must fill out form It-2104 for a new job I am starting
Hi, I must fill out form It-2104 for a new job I am starting tomorrow and am baffled by it. I want to file married but single and withhold more taxes such as claiming 0 now and have my husband claim m… read more
Barbara
Barbara
Enrolled Agent, Paralegal
3,808 satisfied customers
If I apply for a new credit card and transfer my balance
If I apply for a new credit card and transfer my balance from an old credit card to the new one, then later decide to return something that was purchased on my first credit card how would that work?… read more
Carter McBride
Carter McBride
LLM
265 satisfied customers
I run a US based LLC and am unsure what transactions I can
I run a US based LLC and am unsure what transactions I can put on our company card that are kosher for the IRS.For instance, can I include company dinners with employees or prospects on it? Can I incl… read more
Mark Taylor
Mark Taylor
Certified Public Accountant
Masters
2,282 satisfied customers
I have moved several times during the past two years and not
I have moved several times during the past two years and not sure that IRS have had my most recent address. If I am audited -- would IRS send me a written notifaction to the address they have on my au… read more
Barbara
Barbara
Enrolled Agent, Paralegal
3,808 satisfied customers
Whats the current status of the triple tax free Municipal
whats the current status of the triple tax free Municipal bonds? are bond prices going down as interest rates go up? is this a good time to buy tax free municipal bonds? I see some online banks offeri… read more
LEV
LEV
Retired
Bachelor's Degree
14,896 satisfied customers
I do have a question. I'm trying to buy an RV and I received
I do have a question. I'm trying to buy an RV and I received a Motor Vehicle Purchase Order - Simple Interest. It shows the dealership as the creditor/seller and list finance charges, etc. But, it als… read more
PDtax
PDtax
Owner
Master\u0027s Degree
1 satisfied customers
Disclaimer: Information in questions, answers, and other posts on this site ("Posts") comes from individual users, not JustAnswer; JustAnswer is not responsible for Posts. Posts are for general information, are not intended to substitute for informed professional advice (medical, legal, veterinary, financial, etc.), or to establish a professional-client relationship. The site and services are provided "as is" with no warranty or representations by JustAnswer regarding the qualifications of Experts. To see what credentials have been verified by a third-party service, please click on the "Verified" symbol in some Experts' profiles. JustAnswer is not intended or designed for EMERGENCY questions which should be directed immediately by telephone or in-person to qualified professionals.

Disclaimer: Information in questions, answers, and other posts on this site ("Posts") comes from individual users, not JustAnswer; JustAnswer is not responsible for Posts. Posts are for general information, are not intended to substitute for informed professional advice (medical, legal, veterinary, financial, etc.), or to establish a professional-client relationship. The site and services are provided "as is" with no warranty or representations by JustAnswer regarding the qualifications of Experts. To see what credentials have been verified by a third-party service, please click on the "Verified" symbol in some Experts' profiles. JustAnswer is not intended or designed for EMERGENCY questions which should be directed immediately by telephone or in-person to qualified professionals.

Show MoreShow Less

Ask Your Question

x