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Private Mortgage

Private Mortgage
Daniel Cohen
UpdatedMay 22, 2024
Key Takeaways:
  • Private mortgages are sometimes called 'hard money' mortgages.
  • If you create a 1098 and your child files it, the IRS will likely audit your return.

I want to pay my son's second mortgage and have him repay me. What form do I file?

My son has two mortgages on his home. I want to pay off his second mortgage and then have him repay me monthly at a lower interest rate. I will be sort of acting as his bank. What form do I use to protect my interests and still allow him to get his federal tax interest deduction? I understand according to the IRS that this form must also be a mortgage secured by this same home I'm refinancing. I'm not worried about the first bank lien on his home.

I see two issues in your letter: First, protecting your rights if your child stops paying the second mortgage; and second, dealing with the tax implications of becoming your child’s banker.

Private Mortgage

Generally speaking, private mortgages are offered to people with no or low credit rating. The interest rate on a private mortgage is higher than a conventional bank mortgage. Private mortgages are sometimes called "hard money" mortgages.

In your case, you are acting like a hard money lender, but because your child is the borrower you are not offering a hard-money rate.

Whether you are offering a private mortgage/hard money loan to a relative or a stranger down the street, your issues are the same. You need to protect your interest if the borrower fails to repay the loan. It is likely your child has the best of intentions to pay the loan. However, unforeseen events occur. What are your rights if your child becomes unemployed and cannot repay you? Where will you stand if your child dies unexpectedly? Or if your child is married and becomes divorced? Or if your child is single today gets married? Or sells the property? In a nutshell, you need to answer the question, "If I lend the money, what are my rights?"

Quick Tip can help you find a good deal on a home loan refinance.

A form will not answer your needs. You need a contract with your child that spells out your rights and your child’s liabilities. You need to decide if you will have an interest in the property — in other words, a lien. Consult with an attorney in your state who has experience in contracts law or real property.

Tax Implications

You mentioned the federal tax deduction for mortgage interest. This is provided on the IRS form 1098 that the lender must provide to the borrower. In your case, you would need to complete a 1098, give it to your child before January 15 of each year. Your child, or any other borrower wanting the mortgage interest deduction, would file this with their form 1040 tax return.

It is likely that if you create a 1098 and your child files it, the IRS will audit your return to make sure you are declaring the interest income and paying taxes on that income. This is no reason not to create and give a 1098 to your borrower, but you must be aware that the 1098 creates a nice audit trail for the IRS to follow.


As mentioned earlier, consult with an attorney to draft a contract before you lend you child the money. If you do not, you should be pleasantly surprised if the debt is repaid, but set an unspoken expectation to yourself that the money lent is actually a gift.

I hope this information helps you Find. Learn & Save.



The Latest on Mortgage Rates

It is expected that mortgage rates are subject to change. Homebuyers and those refinancing their mortgages should pay close attention to the latest mortgage rate

Mortgage rates April 10, 2024
According to Freddie Mac, the 30-year mortgage rate for the week of April 10, 2024 stands at 6.88%. This reflects a 6 basis points increase from the previous week's rate.
Note: A basis point is equal to one-hundredth of one percent (0.01%). In numerical terms, if the mortgage rate changes by 20 basis points, it means the rate has changed by 0.20%.
Additionally, Freddie Mac reports that the 15-year mortgage rate for April 10, 2024 is 6.16%, indicating a 10 basis points increase from last week’s rates.

What does the mortgage rate mean for you?
Mortgage rates are one of the key factors that determine your monthly payment. Here are avergage interest rates (APR) for April 14, 2024 based on Zillow date for borrowers with a high credit score (680-740) in the United States:

  • 30-year conventional loan is 7.09%
  • 15-year conventional loan is 6.29%
    Using the rates mentioned above, the monthly payment for a $279,082 30-year-year mortgage would be $1,874. A 15-year mortgage would require a monthly payment of around $2,399.

Experience a smooth mortgage process: Shop around and get pre-approved today!
Shopping around for mortgages and getting pre-approved can make your home-buying or refinancing process easier. Ready to take the plunge? Check Out mortgage rates now for the best options available.



hhard money loan utah, Nov, 2010
You need to protect your interest if the borrower fails to repay the loan. It is likely your child has the best of intentions to pay the loan.