€40,000 to pay off, help

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gongey

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101
Hi,

I got a loan of money off the parents to use to clear debts and the balance to have a deposit on a house.

I've decided not to buy in Dublin and want to get the money back to the parents by September. I've 16K at the moment and have to get it back to the 40K margin. But I'd also like to keep options open in the future and I'm afraid that if I get a loan, then my mortgage repayment capacity wouldn't be great in the future

I'm on decent money with the expected increase due in about a month, how do I raise capital in such a short time. I could afford to save 750 -1000 if I cut back but I'll still be nowhere close.

any advice would be appreciated.
 
Hi

Have you read some of the Key Posts?

Could you clarify exactly what you owe-is it €40k less €16k? Have you paid the deposit? Are your parents demanding repayment by September?

There is no quick way to 'raise capital' other than by borrowing, unless you have assets you can sell (car?).

Cut up your credit card. Stop socialising. Work overtime. Get a second (part-time) job. Walk instead of taking public transport. Shop in Lidl/Aldi. As Tesco like to say "Every little helps".
 
it's 24K i need, I don't have a credit card, I can cut back on spending. My queries is whether to get a loan right away on the 40K, keeping 16K in savings or whether to get a loan of 24K and have no savings in case i ever do go to buy an apartment.

or would it be better to get a mortgage, and try and draw on the equity to pay the parents back?
 
I'm wondering how you initally had planned to pay back the money. If you're paid at the end of each month you have 7 wage payments till end of September. If you put aside the €1000 or more by living as cheaply as possible you'll have €23,000. prehaps you could then come to an arrangement with your parents to pay off the rest in installments. Don't dismiss the small savings - they can very quickly grow if you're careful.
 
my initial plan was to get the house first and then remortgage to pay them back. that may still be the plan, if I could get advice on this I'd be grateful?

my plan is to have an extra 7,000 saved and i've actually had a steady stream of savings for the past three months.

i'm asking the best way forward? my parents are cool, but I'd like them paid back soon. they're not demanding in any way,
 
gongey said:
My queries is whether to get a loan right away on the 40K, keeping 16K in savings or whether to get a loan of 24K and have no savings in case i ever do go to buy an apartment.
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It would be better to have savings and no loan from a bank if you intend to apply for a mortgage. Banks don't care about loans from parents, so I would try to keep that as opposed to refinancing (subject to your parent's agreement)

It doesn't make sense to have a loan of €40k and savings of €16k, as the rate on the loan will be 2-3 times higher than that on the savings.

What are your parents willing to accept-can they be repaid at a reasonable rate of interest, say 3.5% over a 3 year period? Or do they need the cash soon?

gongey said:
or would it be better to get a mortgage, and try and draw on the equity to pay the parents back?
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I'm not sure I understand-how and when do you propose to remortgage (I presume that is what you mean by 'drawing on the equity'?)-surely this would take a year or two after purchase anyway, and the chances of FTBs having equity in their homes that soon is deceasing by the day IMHO.

To be honest, even with debt of €24k, you will be hard pushed to afford mortgage repayments and debt repayments I would have thought. You may be better off waiting for a year or two and reviewing your situation at that point.

Another thing to remember is that you will need cash of anything from €5k to €10k (or higher) to finance solicitors fess and furnshings for any new house.
 
gongey said:
my initial plan was to get the house first and then remortgage to pay them back. that may still be the plan, if I could get advice on this I'd be grateful?

my plan is to have an extra 7,000 saved and i've actually had a steady stream of savings for the past three months.

i'm asking the best way forward? my parents are cool, but I'd like them paid back soon. they're not demanding in any way,
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I'd be inclined to agree with CCOVICH about the equity - it's possible that you may build up equity quickly enough to pay back your parents in the next couple of years, but I personally wouldn't rely on that and would treat it as a bonus if it were to happen. To be honest, what you'd effectively be doing if you did remortgage would be to pay off your 0% loan (assumption - "cool" parents = 0%) at the cost of borrowing €40k over the next 25-35 years or so. Since you've already serviced other debts to the tune of €24k (credit cards, car loan perhaps?), you're just rolling them up into a 25-35 year term, you're not actually dealing with them. Incidentally, that €40k could well end up costing you in escess of €70k by the time you pay it off.

The financial purists amongst us would say hand back the €16k to your parents now and pay them back €1000 p.m. for the next two years - assuming they're not charging you interest, it'll be the cheapest loan you'll ever have. Realistically, you haven't a hope of getting to €40k by September based on the figures you've quoted. You're gonna have to knuckle down for a long, hard slog I'm afraid - there is no quick fix.
 
I would do a deal with your parents - perhaps you can offer them some sort of loan note that would be secured on a future property ( would have to be a second charge after the bank of course) or maybe you could pay them back 1000 per month instead of you saving it. I'm sure they'd appreciate the regular income.

Not sure about the tax implications though.
 
Theo said:
Not sure about the tax implications though.
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If it's a 'zero coupon' loan, then there would be no tax implications.

The topic of tax on interest on loans to family members has been discussed somewhere here before. You may be able to claim that the 'interest' paid is a gift and hence may be eligible for the Small Gift Exemption (quoting from [broken link removed])

The first €3,000 of the taxable value of a taxable gift made by you to any donee in a calendar year is exempt from tax. A recipient can get a small gift exemption for each donor. A donor can have a small gift exemption for each donee.

Example

A child can take €3,000 from each of four grandparents and from each parent (€12,000 in total) per year without any gift tax charge.
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