Carrying a mortgage for a family member can be a good investment, but it can also be tricky. Here are a few things to consider.

The lender must be comfortable with the deal. While a 30-year term is a popular bank loan, private lenders are sometimes more comfortable with shorter loan periods like 15 or 20 years. A 30-year term could be made more attractive to the lender by introducing a higher rate of interest at 10-year or 15-year intervals.

Questions to answer before agreeing to make the loan include:

▪ How will the loan be paid off if the borrower dies or is otherwise unable to complete payment or sell the property for enough to pay off the loan?
▪ What happens if the borrower goes into bankruptcy?
▪ What if the borrower fails to make timely payments?
▪ Will the lender require the borrower to escrow the property taxes and insurance?

Also, put the details of the transaction in writing and record it at the local recorder of deeds office so the borrower can’t get another loan on the property or sell the home without paying off the borrower.

Source: Real Estate Matters, Illyce R. Glink and Samuel J. Tankin (11/27/2010)