# repaying private loan



## patricia-ann (25 Aug 2006)

i separated from my husband last year as part of the deal I payed him 
€240 k.borrowed from a mutual friend who offered this as an interest free loan
to be paid back at an unspecified amount per month and in 5 yrs time when I am 65 repay the balance which I thought I would get by equity release or a similar  arrangement.Now this friend has suggested that I  give them 40% of the value of the house when  I sell or move out .I can stay as long as I like and don't have to make any repayments in the meantime. Is this  for me or is there abetter way to repay the loan?  would paying interest at the going rate cost me more?


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## Eurofan (25 Aug 2006)

How can we tell without a valuation of the house? (i.e  if it's worth €400k then it's a fine deal, if it's worth €1m then it's a dreadful deal).

I'm gobsmacked at the nature of this deal it must be said. (A quarter million from a mutual friend with unspecified repayments?! Wow!) Was there _anything_ put down on paper about this arrangement?


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## patricia-ann (26 Aug 2006)

patricia-ann said:


> i separated from my husband last year as part of the deal I payed him
> €240 k.borrowed from a mutual friend who offered this as an interest free loan
> to be paid back at an unspecified amount per month and in 5 yrs time when I am 65 repay the balance which I thought I would get by equity release or a similar  arrangement.Now this friend has suggested that I  give them 40% of the value of the house when  I sell or move out .I can stay as long as I like and don't have to make any repayments in the meantime. Is this  for me or is there abetter way to repay the loan?  would paying interest at the going rate cost me more?


the house was worth about €700k at the time and is worth €850k or more now due to a jump in house prices in this area .the 40% figure was arrived at by the lenders but my ex took the €240 beause he wanted money quickly.Nothing was put on paper at the time but now the lenders want me to sign an agreement to say I willgive them 40% when the house is sold a good investment for them but they have lent a lot of money


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## RainyDay (26 Aug 2006)

This is verging on blackmail. You owe them €240k, no more, no less. Can you do equity release now and get them off your back?


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## patricia-ann (26 Aug 2006)

Iam not sure what that would cost me ,my son is going to set up ameeting with a financial advisor to see what my options are ,thanks for your comment I somehow feel that the arrangement is not a good one the house is my only 
 asset and although they did bail me out of a difficult situation the long term effects are not beneficial


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## liteweight (26 Aug 2006)

patricia-ann said:


> Iam not sure what that would cost me ,my son is going to set up ameeting with a financial advisor to see what my options are ,thanks for your comment I somehow feel that the arrangement is not a good one the house is my only
> asset and although they did bail me out of a difficult situation the long term effects are not beneficial



These people obviously have a great deal of money to be able to lend you 240K. It was very good of them but the price they now want is way too high. I see from the above quote that you have a son. If you sign away 40% of your house you'll also be eating into his inheritance.

This is a very, very bad deal for you. Definitely take some advice on it. What is their alternative proposal with regard to repayment...is there one?


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## wiggzie (26 Aug 2006)

not sure friend is appropriate here...


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## liteweight (26 Aug 2006)

wiggzie said:


> not sure friend is appropriate here...



I agree....opportunist perhaps....


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## RainyDay (26 Aug 2006)

patricia-ann said:


> Iam not sure what that would cost me ,my son is going to set up ameeting with a financial advisor to see what my options are ,thanks for your comment I somehow feel that the arrangement is not a good one the house is my only
> asset and although they did bail me out of a difficult situation the long term effects are not beneficial



Make sure the financial advisor is independent (i.e. not just trying to sell you a mortgage product) and independent of your son - no disrespect, but your son's best interests and your best interests in this matter may be different. I wouldn't worry too much about spending his inheritence - it's your money and he should be planning to stand on his own feet.

Have you considered trading down to a smaller property or other location to free up equity?


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## liteweight (26 Aug 2006)

I agree with RainyDay with regard to independent financial advisor. The son's inheritance wouldn't even come into play were it not for the fact that these 'friend' intend to rip him off when your gone!

I genuinely believe that you have to look after yourself in this situation. Your marriage is not over long and you're vulnerable. If you agree to their arrangements, they will already have made circa 100K interest on your loan if you sell tomorrow!! Tell them you'd like to stick to the original agreement and see what happens. If they want their money back, tell them they'll have to give you time to repay. I definitely would not give them a percentage of my home!


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## patricia-ann (26 Aug 2006)

thanks for all your comments.I felt that it was a bad deal and now  I am sure it is.My son is one of 3 kids  all of whom just want me to have some financial security and peace of mind,and would encourage me to accept the conditions suggested by the lendersif it means  I can remain in the house. I am not happy about giving 40% of thier inheritance away,they say "don't worry about us we are fine"But it seems a little like profiteering


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## MOB (27 Aug 2006)

Hi Folks,

Unless I have misunderstood the nature of the friends proposal, I think there has been a bit of a rush to judgment here.  I do not think this is a bad deal at all.   If we take literally Patricia-Ann's statement that she will be allowed stay in the house as long as she likes, it is a very good deal for her.

She has got €240k up front.  The suggested price for this is :

A. 40% of the value of the house PLUS
B. The exclusive use of the house by the 60% owner for her lifetime (which you might regard as being equivalent to an index linked annuity paying the equivalent of 40% of the rental value of the house each year)

40% of €700k (when she got the money) was €280k.  40% of €850k is €340k.   Possibly at age 65, when the 240k is due to be repaid, this figure might be higher again - perhaps €380k

As I understand it, for the extra €40k\€100k\€140k (depending on what point in time you take you figure from) Patricia-Ann gets to pay no interest on the €240k, she gets to have the sole use of the house and she gets to stay in the house if she wishes.  Possibly for the rest of her days?  (I am not clear if the deal is in the context of a definite sale but giving some flexibility on timing or if 'as long as I like' means exactly that).

If it is intended as part of the deal that the house must be sold within a certain (eventual) timeframe, then depending on the timeframe this may a good deal for Patricia-Ann and possibly a heck of a lot softer terms than are available commercially on any reversionary mortgage product.  If the friend(s) who lent the money are willing to let Patricia-Ann stay in the house for her lifetime, and if she is in reasonable health, it is a superb deal for her.

The benefit to Patricia- Ann of the newly proposed deal should of course include a comparison with the interest free loan up to age 65 which these friends already very kindly gave.  However, as regards assessing the friends bona fides, I think the new proposal should be evaluated by reference to 

a. The equivalent, commercially priced alternatives available to Patricia-Ann
b.  The alternate investment use to which the friends could put the €240k if they got it back from Patricia Ann at age 65.

By measure 'a'  Patricia Ann would probably do worse getting the money elswhere and by measure 'b' the friends would probably do better putting their money elsewhere (depending on how long it is intended that she can stay in the house).

Sorry to disagree with the emerging consensus, but this does not remotely reek of blackmail to me, nor does it even sound like a bad deal.

I would hate to think that Patricia-Ann might start having reservations about these friend in circumstances where (as far as I can see) they have been rather decent.


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## liteweight (27 Aug 2006)

Mob, I think you missed the point that this was given as an interest free loan to be repaid over 5years at whatever amount Patricia Ann could afford. The balance to be repaid when she reached 65, presumably from a pension lump sum or equity release. Very, very decent...there's no doubt.

However, given this decent offer, I'm sure Patricia Ann did not persue any other means to solve her dilemma. For the 'friend' to come up with another proposal, after the event, which does involve interest/profit seems suspect IMO.


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## MOB (27 Aug 2006)

I haven't missed the point.  There is nothing suspect about the offer being made in the way which has happened: - quite the opposite.  The friend has made this alternate offer within a year - i.e. with four years to spare.  This leaves Patricia with all the time in the world to explore other means to solve her dilemma.

If the friend left it until year five, if Patricia at that time had no other arrangements in place and was under some pressure, and if the terms of the offer were themselves unfair, then it might smack of taking advantage.   However, the friend has instead given Patricia the offer now, effectively giving her a choice of either taking this offer or having a full four years to implement an alternate arrangement of her own choosing, and in any event has made a pretty fair offer.  

As I see it, she is perfectly free to reject the offer and simply go ahead with the original agreement, which means that she has to come up with €240k in four years time.    It is quite possibly the case that the friend has made this offer now simply as a way of making clear to Patricia that the free loan terms are not intended to be extended beyond the five years agreed.   If I were in the friend's position, I would probably do likewise.  

As an alternative, to this offer, when Patricia turns 65, she can look for an equity release.  When she does so, she will find that to realise €240k then AND not to have to pay it back during her lifetime means giving up considerably more than 40% of the value of the house.   


Giving a free loan for five years does not involve any moral commitment to give further free or soft loans: the friend has made clear, in a very transparent and polite way, that if Patricia wants to stay on in the house after year five, it will have to be be on a more commercial basis.  Patricia is free to do a commercial deal with a bank.  She is free to do a commercial deal with the friend.  Indeed she is free to do a commercial deal with any member of her family.   I think that when she explores these options, she will find that the 'commercial' terms offered by the friend are still fairly soft.

It would be a shame if in the meantime she lost the goodwill of this friend - who appears to me to have done nothing wrong at all.


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## liteweight (28 Aug 2006)

MOB said:


> I haven't missed the point.  There is nothing suspect about the offer being made in the way which has happened: - quite the opposite.  The friend has made this alternate offer within a year - i.e. with four years to spare.  This leaves Patricia with all the time in the world to explore other means to solve her dilemma.



We obviously view this differently! The way I see it, Patricia Ann was given an interest free loan for 5 years. Very generous. She was asked to pay it back over those 5 years at her own pace and anything that was left at the end of the term would be paid by lump sum.

Depending on her circumstances and that of her children, a large proportion of that money may already be paid by year 5! For example one of her children might be in the position to buy out the loan for a % of the house. I'm sure this would sit much better with Patricia Ann. In any event, at the end of 5 years the amount owing would be smaller than what you suggest in the above post.

IMO the lender has moved the goalposts......they want her to sign a document TODAY stating that they get 40% of the house is she sells, or MOVES OUT. This cuts down her options for retirement. If she wants to retire abroad, for example, she would have to sell her home rather than keep it to come back to, or to rent in order to generate an income.

There is no getting away from the fact that Patricia Ann was given a very generous amount but at the time, there were no conditions attached. Now there are and she should check out whether they have the right to do this and what is best for her in this case.


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## patricia-ann (28 Aug 2006)

And that is what I will do.The main concern I have re the proposed arrangement is that it  limits my options.What started out as an interest free loan between friends (offered by them to my surprise) for which Iam VERY grateful has become an investment in my house which I would NOT have considered had it been suggested at the time.
 I will get all the info I can and  see what other options are open to me.I
  may find that I have no other choice but to agree to my friends proposal
but at least I will be making an informed decision.
  Thanks for all your comments and opinions                          .


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## clareG (29 Aug 2006)

This is a serious situation please get the best Financial Advice you can also legal advice, and could I respectively suggest that you make a will if you do not have one.


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