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Unique home refinancing

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David111
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Unique home refinancing  Reply with quote  

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!
Post Fri Feb 27, 2015 6:20 pm
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oldguy
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quote:
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!


No - you would use the MIL funds to payoff the mortgage - not a taxable event, and nothing that involves the IRS. And no closing costs, etc, because you will not be refinancing, just paying off the mortgage. The final issue - deducting the mortgage interest each year - you lose that, you cannot deduct interest paid outside the US.

BTW, your "effective" interest rate is lower than 5%. Your 5% Utah state income tax and about 25% Fed income tax brings your interest rate down to 3.5%. So use that value when you compare the MIL rate to your current rate.
Post Fri Feb 27, 2015 6:50 pm
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Wino
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If the MIL borrows this in a foreign currency, you're also playing the foreign currency market. If the dollar falls, you'll be paying back "more" than you borrowed. Personally, I would not do it.
Post Sat Feb 28, 2015 6:28 am
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