Just to build on Red Onion’s suggestion re a covenant, I’ve actually run the numbers and it can make massive sense. Take the following scenario:
- OAPs with €30k of pension income
- Funding requirement of €50k
- €50k borrowed from Seniors Money/Spry
- Family member(s) paying tax at 40% covenant €5k a year to the OAPs for a period of 10 years
- The OAPs use the €5k to pay-down the loan each year
- The cost to the family of that €5k is €3k
- After 10 years, the loan balance is approximately €17k
- The family clear that with a bullet payment
- The total cost to the family of clearing the €50k loan is €50k, i.e. no cost, which is great
- By setting a higher covenant payment from the start, but depending on the OAPs’ income level, the bullet payment could also end-up being subject to tax relief (e.g. by upping the covenant to circa €6,700 pa)
- The family members inherit the house and get their €50k back that way