1. Your HELOC interest is not deductible if you use the proceeds for a family. The HELOC interest is only deductible as Mortgage interest only if you use the proceeds to buy, build or substantially improve your home that secures the loan, This does not at all depend on the interest you charge for your family loan. The exception you mentioned only applies when you use the proceeds for a business.
2. You are free to charge any reasonable rate of interest for your personal loan. But please note that you have to report any interest you receive as interest income on your personal tax return.
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