Advice on Turning my Mortgage into Family Loan

Hello Everyone,

I would really appreciate some advice on a mortgage dilemma. I am nearly at the end of the first 3 year term of a 15 year mortgage. My family have offered to pay off my mortgage at the end of this term and effectively turn the mortgage into a personal loan. Their idea is to use this as an investment while reducing the amount of interest we have to pay our mortgage company. I am unclear on the following:

1. From my family's point of view does this represent a favourable investment ( presuming I repay the loan at a slightly lower interest rate to the one offered by the mortgage company).

2. Would this be above board and are there standardized legal agreements for personal loans? ( I don't want to end up talking about dig outs )

Thank you for any advice and for your time,
Mark



Mortgage: 170,000
Term remaining: 12 1/2 years

Hi Mark

I presume that you are based in Ireland?

There is absolutely nothing below board about your family lending you money to buy a home or to replace a mortgage.

Is it a good investment for them? It depends on the rate you are paying on your mortgage. Presumably you will be paying around 5% when the fixed term ends. They can get around 4% on a deposit, so it's an ok investment for them, but not great.

They would have to pay DIRT on the deposit interest from a bank. They would have to pay tax at the marginal rate on interest paid by you.

You can claim TRS on the interest paid on your mortgage. I presume you can claim it on the interest paid to your family as well, although it would be messy.

If you are able to make your repayments to the mortgage company without any difficulty, I think that you are better staying with them and not complicating it unnecessarily.

Brendan

I fail to see how this is a good idea for anyone?

Bronte said:

I fail to see how this is a good idea for anyone?

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Agreed. As a commercial transaction it has no merits. However if it is an effort by close members of your family to help you out that is an entirely different matter. Unless this transaction is actually saving you money (at a cost to your family) then you should avoid it.

Really there is just one word for this, don't. It will just complicate everything, no one knows what could happen down the road and they may need this money or some of it, unless they are really really wealthy and this is just spare change. Unless you are on a fierce high rate it won't even benefit you that much, not worth it for the hassle it could cause.

I would grab the opportunity. You will probably not be hit by interest rate hikes and you would be less likely to end up on the street if you did encounter financial problems in the future.

I don't think this is a good idea. What happens if you lose your job and are unable to pay your family back?

Thank you all for your advice, it has been really helpful.

Our rate at the moment is 4.7% and I am expecting that
to be higher if we re-fixed. My family have a large sum of money that
they are looking to invest and are worried about stability of bank investments.
While it would certainly bring potential complications that I had
hoped to iron out in a loan agreement, I see the strengths of the idea as:

- allowing more flexibility in repayments ( lump sums )
- the loan sum is less than 15% of the property value ( so collateral )
- the property has rental income to partially cover repayments
- keeping interest payments in family and not bank( although this seems more of an emotional point and not financially valid unless rate of interest higher than what they could get elsewhere).

Thanks again!
Mark

Mark you've listed only the positives, shouldn't you list the negatives?

The ECB rates have been held steady and forecast is for them to go down so you would seem to be incorrect on your interest rate forecast.

Are you on a fixed rate? Which bank?

Yes, that is indeed a fair point!

The negatives then are:

- the interest rate might decrease
- risk mixing family and finances!
- risk that the family investment is not as favourable as a bank

I'm coming to the end of term on a 3 year fixed rate mortgage (4.7%) with EBS - 12 years to go.

Another negative I can think of is you won't have mortgage protection as you're mortgage free.

Markjm said:

- risk mixing family and finances!

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And the even bigger risk that if anything goes wrong none of you will ever speak to each other again. For the sake of you saving 1 or 2% interest over 12 years is it worth it?

both very good points. I am well and truly convinced that it is a bad idea - thanks for all the advice, it is very much appreciated.