My brother came to me to borrow money to pay some taxes that are due by the end of this year.
The only way I can get the requested amount is by selling mutual funds. As you know, the US stock market has been quite volatile, losing around 7% last week alone. Rather than specify an exact interest rate, I would like to say that when the money is paid back, they (he and/or his heirs) will just pay me enough to buy back the same number of shares in the same mutual funds. This might be less than the price I sell at tomorrow, but it also could be 15 or 30% more by the time I'm paid back.
Does this sound like an acceptable rate? I want to know if, in your opinions, I'm being usurious.
For the record, my brother and his wife say this is OK, and in the past he has offered (without my requesting it) to pay any IRA early withdrawal penalties, capital gains tax, and credit card interest incurred from the loans, which can easily inflate the loan by 10% to 20%.
To address some of the points raised in the answers:
The loan is to cover taxes on his home and on the rental properties that I co-own with him. He spent all the rental income on property expenses and on his own expenses, and there's nothing left to pay the taxes. If we don't pay, we may lose the properties.
It may be a terrible idea, but he has nobody else to turn to.
He doesn't make enough at his job to get a bank loan. He owns 1/3 of the cost of his house; the other 2/3 are mortgaged to me and our late father. Nothing has been paid toward the mortgages for the past 20 years, so he can't get a home loan.
Friends and his wife's family won't lend them anything. He sold our late father's brokerage-held stocks (including my portion) via a joint bank account, and the rest of the stock is being held by the state as unclaimed assets. I gave him pieces of my savings when he periodically came to me at the end of the month saying he can't risk having his health insurance cancelled, and at the end of the year when he needed to pay property taxes. When I ran out of savings, I let him use two of my credit cards. They are maxed out (as is our late father's credit cards), so selling stock is all I can do now.
My request was in fact influenced by my belief that the stock market will recover. All I want is to be made whole again. I've lent him cash with 0% interest rate, for example when he says "I need $500 right now to prevent a check from bouncing and you'll get it back next week." But when I have to sell property like stock, or hypothetically, my house, with 5 days' notice to get him money, what I want to say is that I want the same stock (or an equivalent house) back, no more, no less.