The applicable federal rate (AFR) is an interest rate published monthly by the U.S. Treasury (IRS) to calculate imputed interest charges. The AFR is the rate used by the IRS to determine interest charges, even when no interest has actually been charged.
The AFRs for a particular month are generally made available during the third or fourth week of the preceding month; the current rate information presented will ordinarily contain the four (4) most recent available months since, in certain circumstances, the AFR to be utilized is determined as the lowest relevant AFR for the month of the transaction and the two preceding months.
The AFR may be a consideration, for example, with loans between children and parents. This tactic is sometimes used in lieu of or to supplement a reverse mortgage. You should consult a tax specialist before entering into this type of arrangement.