What Interest Rate Do I Have to Charge a Family Member? Family Loans and the November 2026 AFRs

If you lend money to a family member in November 2026 and want to stay clear of gift tax issues, the interest rate should be at least the IRS applicable federal rate (AFR) for the loan's term. For November, that's 4.67% for loans of 3 years or less, 5.08% for loans over 3 and up to 9 years, and 5.52% for longer loans, with annual compounding (Rev. Rul. 2026-21). Those rates jumped from October, which matters if you're about to sign a note.

As a Houston CPA and financial planner, I see family loans most often when parents help an adult child buy a house, refinance expensive debt or start a business. A loan can be a good middle ground between saying no and making a large gift. It only works if the paperwork and the interest rate hold up.

This is general education, not advice for your specific situation.

What are the November 2026 applicable federal rates?

The IRS publishes new AFRs every month. Here's how November compares with October, using annual compounding:

Sources: Rev. Rul. 2026-19 (October) and Rev. Rul. 2026-21 (November).

Each ruling also lists equivalent rates for semiannual, quarterly and monthly compounding. For November, the long-term rate is 5.39% with monthly compounding (Rev. Rul. 2026-21). If your note has monthly payments, I'd use the column that matches how the note compounds. The full list is on the IRS applicable federal rates page.

Why does the IRS care what I charge my own family?

Because an interest-free loan moves value from one person to another. The federal below-market loan rules treat a family loan with too little interest as two things at once:

• A gift from you of the interest you didn't charge.
• Interest income to you, as though your family member paid you the interest and you gave it back.

The law defines a gift loan as any below-market loan where giving up the interest "is in the nature of a gift" (the statute). Charging at least the AFR keeps the loan out of these rules altogether.

Does the rate lock in, or does it change every month?

It depends on whether the note has a due date.

• Term loans have a fixed repayment schedule. They use the AFR in effect on the day the loan is made, and that rate stays for the life of the loan (the statute). A 30-year note signed in November keeps November's long-term rate.
• Demand loans can be called at any time. They're measured against the short-term AFR as it changes, so the minimum rate floats.

Rising rates make that difference matter. Here's a rough example based on my own math, not an IRS figure. On a $400,000, 30-year family mortgage with monthly payments, the November long-term rate of 5.39% (monthly compounding) works out to about $2,244 a month. The same loan at Freddie Mac's average 30-year rate of 7.24% as of October 29, 2026 would be about $2,726 a month (Freddie Mac). That's a savings of about $480 a month for your child, and the interest stays in the family. Bank rates vary by borrower, so treat the comparison as a rough guide.

The December AFRs will be published in mid-to-late November. They could be higher or lower than November's, and nobody knows yet. If you've already decided to make a loan, I'd base the timing on when the paperwork is ready, not on a guess about rates.

What if I want to charge less, or nothing at all?

You can. The tax code just keeps score. Two exceptions cover a lot of everyday family lending (the statute):

The $100,000 rule only helps with income tax. The gift side still counts.

For an interest-free term loan, the gift is measured up front: the amount you lend minus the present value of the payments your family member has promised to make, figured at the AFR (the statute). That can be large. By my own estimate, a $400,000 interest-free loan due in a single payment after 30 years would be treated as a gift of roughly $320,000 at November's long-term rate. That's well above the 2026 annual exclusion of $19,000 per person, so it would need to be reported on Form 709 and would use part of your $15 million lifetime exemption (Rev. Proc. 2025-32). I cover how those limits work in how much you can give tax-free in 2026.

How do I set up a family loan the IRS will respect?

The IRS looks at whether you and your family member actually behave like a lender and a borrower. Here's the checklist I use:

• Write a promissory note. Include the amount, the interest rate, the payment schedule, the maturity date and what happens if a payment is missed.
• Use at least the AFR for the loan's term and the month it's made, in the column that matches how the note compounds.
• Make real payments. Have them go from your family member's account to yours on schedule, and keep records.
• Secure a home loan with a recorded deed of trust. Your child can only deduct mortgage interest on debt secured by the home under an instrument that's recorded or otherwise perfected under state law (IRS Publication 936). In Texas, I'd have a real estate attorney draft and record it. An unrecorded note means your child loses the deduction.
• Report the interest. Interest you receive is taxable income to you, just like bank interest (IRS Topic 403).
• Treat siblings fairly in your estate plan. If one child gets a loan and the others don't, decide whether any unpaid balance at your death counts against that child's share. Your will or trust should say so.

Can I forgive the payments each year?

Yes. Forgiving a payment is a gift of that amount, and a common approach is to forgive up to the annual exclusion each year: $19,000 per person in 2026, or $38,000 from a married couple (Rev. Proc. 2025-32).

There's a caution. If the family understands from day one that nothing will ever be repaid, the IRS can argue the whole amount was a gift when the money changed hands. In my practice, the plans that hold up keep the note real: payments are expected, and each year's forgiveness is a separate decision. If you want to give the whole amount, an outright gift may be simpler.

For families thinking about the bigger picture, a family loan often sits next to other steps, such as annual gifts, paying tuition directly and the inheritance strategy you want for your children. It's also worth putting on your year-end tax planning checklist, since the gifting choices tied to it reset on January 1.

How I can help

A family loan is a lending decision, a tax decision and a family decision all at once. In a working session, we can model the payment schedule at the current AFR, compare a loan with an outright gift, and map out how it fits your cash flow and estate plan. I don't draft legal documents, so I'll coordinate with your attorney on the note and deed of trust.

Mercer Street's work is billed at $600 per hour with a 2-hour minimum ($1,200). See how working together works, and schedule a consultation when you're ready.