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More parents finance their kids' mortgages |
October 04, 2011
In 1991, Dan Driscoll of Towson, Md., and his wife, Theresa, wanted to buy a house, but the lowest mortgage rate they could find was 9%. Meanwhile, Driscoll's parents, who were retired, were earning 3% on their savings. At Driscoll's suggestion, his parents financed his $75,000 mortgage at a 6% rate. Now, Driscoll has taken on a different role. Earlier this year, Driscoll's son Dan, 31, expressed interest in buying a larger home in his father's neighborhood. Instead of paying 4.5% for a traditional mortgage, Dan borrowed the money from his father at a 4.25% rate. The arrangement also enabled Dan to avoid paying closing costs, appraisal fees and other expenses charged by a traditional lender, Driscoll says. Family mortgages work, Driscoll says, "if your children are honest, trustworthy and responsible." If financing a family mortgage was a savvy strategy in 1991, the logic is even more compelling now. Returns from the types of low-risk investments favored by retirees...
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