By Rabbi Yosef Fleischman
Question: My son is in the process of purchasing a house. In order to arrange the financing he needs to take a mortgage. However, he is still young and doesn’t have much of a credit rating. Therefore, the bank isn’t willing to lend him sufficient funds. May I take a mortgage from the bank on my name and he will reimburse me for the interest that I will have to pay on the mortgage?
Answer: This is a very common issue and the answer is that you can do it but you must make a heter isska with your son.
The rationale of this ruling is that the halacha (See Shulchan Aruch Yoreh Deah 169, 17 and Bris Yehuda 6, 19) views this arrangement as if the bank is lending you the money and then you are extending a new loan to your son. The criterion for determining who is the real borrower, according to the halacha, is who the lender relied upon in extending the loan. Therefore, in this situation since the bank is depending on you and not your son to repay the loan it is considered that you are the borrower from the bank. The fact that you don’t intend to use the money and just wish to pass the money onto your son is of no importance. Therefore, since you received the money from the bank as a loan, if you pass the funds onto your son you are lending the money to your son and if you charge him interest you are in violation, according to many (According to all it is forbidden, just some rule that the issur is rabbinic.) of the Torah law that one is not allowed to charge interest. Furthermore, even if you were unaware of the halacha and passed the money to your son without making a heter isska you may not afterwards charge or even receive (in general) interest from your son in order to recover the interest you paid the bank.
The Taz (170, 3) applies this principle to a situation where one of two Jewish partners in a business takes an interest-bearing personal loan from a non-Jewish bank and puts the money into the business with the intent that the business will repay the loan. He rules that in general the partners will be violation the Torah prohibition of charging interest.
This Taz contains a ruling which is important where the lending bank is Jewish-owned and itself has a heter isska (like all Israeli banks). He rules that in this case since the one who borrowed from the bank borrowed with the bank’s heter isska the understanding is that the loan between the two partners is also being done with a heter isska. The poskim (See Bris Yehuda chapter 6, footnote 50 and Toras Haribbis chapter 17, seif 14) dispute whether the Taz is lenient only in the case of two partners or even when one person borrowed on behalf of another like the case of a father and son. Therefore, even if the father borrowed from an Israeli bank the father should make a heter isska with his son but if he didn’t do so there are grounds to be lenient.