Which AFR to use with 5 year loan with balloon

My client wants to set up a mortgage with a  family member who would like to charge the lowest allowable rate of interest. Can they use the AFR mid term rate if the loan is set up for 5 years with a balloon payment even if the payment amount is based on a 30 or 50 year amortization or will they be required to use the long term rate?


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IMO you're okay with the 5 year balloon at the mid term rate. I wouldn't amortize more than 30 years though. Structure the note with a rate in excess of the long term rate if the balloon is not paid.


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