Unique home refinancing

[David111]

So we have a home mortgage at a 5% fixed rate that we've been paying on for about 4 years. My mother-in-law, who is a Taiwanese citizen, is able to get a personal loan in Taiwan for a MUCH better interest rate. She has offered to get the personal loan, pay off our home loan, and then have us pay off the personal loan monthly through her. My question is, would this raise some red flags with the IRS, wondering where we got the money? would we be required to pay U.S. taxes on the personal loan from Taiwan? How about closing costs to refinance the house that way? What other issues might come up that we haven't foreseen? Thanks in advance!

[disneysteve]

My knee-jerk answer is not to borrow money from family. However, I realize this involves a cultural component that is foreign to me so this may be something more accepted in Taiwanese families than here in the US.

What would the interest rate be on the new loan? I imagine you would no longer be able to deduct the mortgage interest so be sure to factor that in. Your 5% loan really only costs you about 3.75% after the deduction. How much lower can she borrow for?

I'm not an accountant but can't think of any reason there would be taxes on the new loan. You don't pay taxes on loans.

There wouldn't be an closing costs. You aren't taking out a new mortgage. Your MIL is the one who would have the loan, not you.

What other issues? TONS OF THEM, which is why I wouldn't do this. Are there other siblings who might be upset/jealous that mom is loaning you all this money? What happens if you guys aren't able to pay for some reason - job loss, illness, etc? What if you and your spouse break up? Who owes the money? What if something happens to your MIL? Are you going to have to pay that loan all at once? Will the new loan be a fixed rate? Is it callable in any way?

[Petunia 100]

In the US, personal loans from a bank are typically for a very short term, such as 3 years.

So that makes me wonder, would your MIL be borrowing from a bank or from a person? Are banks in Taiwan willing to lend unsecured money for 30 years at a fixed rate? Or maybe she plans to borrow for a shorter term and you can still handle the payments?

Make certain you understand the terms of the loan and the lending laws in Taiwan.

If you proceed, I suggest you, your wife, and your MIL sign a simple document regarding the loan. Just describe the transaction and write what both parties are agreeing to do. Both parties should keep a copy. This may save you complications down the road.