Mortgage with Parents

[panindub]

Hi all,

Myself and wife current have a tracker mortgage with Ulsterbank. Her parents have spare money to invest and they came up with the idea that we could take a mortgage with Parent instead of with bank at lower interest rate than provided by the bank. In theory help both of us!

1. Any gotcha in this situation?
1a. Would this be considered a gift, and subject to inheritance tax!
2. Would parent have to declar this as income?
3. Should the deeds be kept by parents?
4. Is there a good spreadsheet like Karl's Calculator that we could use to track the payments and any extra repayments?
5. Is there a way to account for inflation? Just make Interest higher than Inflation rate!!

Many thanks
pan

 

[Vanilla]

1. Money lending legislation.
2. Yes if preferential interest rates apply it could be considered a gift.
3. Yes.
4. Er, karls?
5. Better if you dont do it at all as it might not be enforceable. However if you insist all contract payments can be linked to inflation or consumer price index.

 

[askalot]

IMHO sounds like a good way to break up a family!

How long do you need the mortgage for versus the parent's need to get their investment back i.e the interest and original capital?

 

[Vanilla]

IMHO sounds like a good way to break up a family!

How long do you need the mortgage for versus the parent's need to get their investment back i.e the interest and original capital?

Agree, never mix business and family if you can help it.

 

[panindub]

1. Money lending legislation.
2. Yes if preferential interest rates apply it could be considered a gift.
3. Yes.
4. Er, karls?
5. Better if you dont do it at all as it might not be enforceable. However if you insist all contract payments can be linked to inflation or consumer price index.

Thanks all for the replies.

1. Er, Money Lending Legislation, does this mean something like, parent should be registered money lender?

2. If preferential rate is 1 % better than bank rate, would we need to calculate if this would exceed the gift amount allowable per year, and pay gift tax on the amount exceeding gift treshold? Any idea (off the top of you head) what amount is gift free per year?

I agree about reservations on taking mortgage out with parent, if we do proceed we plan to map out a few senarios e.g. if any party has to get money back before end of term, we would have a solution predefined!! And possible put in a contract.

thanks again,
Pan

 

[panindub]

IMHO sounds like a good way to break up a family!

How long do you need the mortgage for versus the parent's need to get their investment back i.e the interest and original capital?

At the moment term would be 27 yrs, but we plan to make extra payment to bring this down.
Parent don't have time limits, the idea would be that they use our repayment to supplement their retirement.

thanks
pan

 

[finty]

Are you overcomplicating this a bit?

Parents buy house, you rent it from them....end of story.

Then you can arrange it to be left to you in will or gifted to you at some stage. Or buy it off them at a later date.

Turning your parents into a lending institution so you can "own" your own place isn't really nescessary, is it?

 

[Complainer]

IMHO sounds like a good way to break up a family!

I agree. What's the overall objective here? If the parents want to help out the kids, why not just get them to give a cash gift, or pay for a holiday or whatever. The whole purpose of a mortgage is that the loan is secured on the property, so the lender can take the property if the borrower defaults. It isn't really feasible for the parent to evict the kids, so they should find some other approach.

 

[panindub]

The idea was for the parent to have a source of income, without having the trouble with looking after house/renter!

Thanks to comments and having looked into the "Gift" option (can be gifted about €500k), this looks the best way of doing it, i.e. parents gift us the mortgage amount and we repay the gift+interest over time!

Cheers
Pan

 

[agapanthus]

I would agree with not mixing family with borrowing. Are you on a good tracker rate? if you are then surely the saving is minimal as there are quite good investment rates to be had for the parents. I am presuming you will not then be able to avail of TRS and if they have to pay DIRT then I wonder is it worth it?

 

[Complainer]

The idea was for the parent to have a source of income, without having the trouble with looking after house/renter!

Thanks to comments and having looked into the "Gift" option (can be gifted about €500k), this looks the best way of doing it, i.e. parents gift us the mortgage amount and we repay the gift+interest over time!

I'm still not sure this is a good idea at all. Have you considered what happens if your marriage splits up? What happens if you encounter serious illness or disability which cuts your income in half? What happens if you or your missus has a gambling problem or an alcohol problem which decimates your resources?