Banks are increasingly setting requirements when providing a mortgage. The savings rate is currently so low that inflation is considerably higher than the savings rate. Solution? Provide a mortgage to your children. In comparison with 2008, the banks have made their criteria for granting mortgages much stricter. This is partly caused by the rules that they have been instructed by the AFM. On the other hand, you can also state that the criteria were too broad in the past. A mortgage up to six times the annual income was no problem. In the mutual competition between banks, there were even providers who were willing to go even further. The situation in 2013 requires starters to look for alternatives to get the financing for buying a house.
Donate money to the children or lend?
Parents have the option of donating a large amount to the children once-only. The child may not be older than 40 and the amount of the gift exemption depends on the purpose of spending the money. When using the money for training or for buying or improving a home, there is an exemption of more than fifty thousand euros. It may be wise not to provide the money as a gift, but as a loan. By lending the money an extra tax benefit can be gained.
Lend money to the children in the form of a family bank mortgage
Parents who are in a position to financially support the children when buying a house can do so in the form of a family bank mortgage. A loan agreement is drawn up which specifies how much the parents lend to the children. By aligning this amount with the amount required to buy a house, a mortgage loan can be established. The parents have the advantage that they can catch a higher interest rate on the savings. The loaned amount still counts for the parents in determining the amount of the tax on the capital, but the amount of the interest can compensate the capital return tax.
Benefits for the kids from a family bank mortgage?
The children have the advantage that they can get a mortgage on flexible terms. A family bank mortgage can also be the solution in case the bank does not want to provide enough money to buy a house. By borrowing part of the parents, banks also become more flexible because they run fewer risks on mortgage lending. An additional advantage is that parents often return part of the paid mortgage interest to the children. The paid mortgage interest for a family bank mortgage is deductible from income under the normal terms and conditions.
A business interest offers opportunities
A loan agreement between parents and children must be business-like. By approximation this means that the agreed mortgage interest rate may not deviate more than a quarter from the level of the mortgage interest rate of commercial banks. A quarter higher or lower mortgage rate may be agreed. It is attractive to agree on the highest possible mortgage interest. The child may deduct the mortgage interest paid from the income and the parent can donate the mortgage interest (or part of it) to the child. A requirement is that the mortgage interest is actually paid.
Video: Paying Off My Mortgage Early with Your Family Bank (April 2020).
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