Hi
This is my 1st time in this forum. I was wondering if anyone is able to advise me on the following:
Would it be wise to help a family member pay of his home 200K home loan if I had more than 100K in my pocket. And then later both her & me buy a house for me and pay ot off in approx 10 yrs rather then 30 yrs, thus saving huge amount in interest ?Maybe it’s OK in theory, but money often creates friction in families, even though you may all be well-intentioned now.
I personally wouldn’t do it.
Think of the opportunity cost and what you could do with the $100k. For example, buy a $95k IP now, and borrow against it for your PPOR deposit when you want to buy your own home? The IP should give you some surplus income to pay off your (non-deductible) mortgage quicker.
$100k now will be worth more than $100k in the future. Property prices may rise even more.
Thus your relative may have to pay you $140k to get the same value out of your $100k today.If he does not grasp that, he might only want to pay you back $100k which would disadvantage you greatly. Thus he gets your cheap money, saves thousands, while you are left short.
Also you are paying him a substantial lump sum. Will he do likewise for you, or will it be little bits every month over many years? If the latter he’s ripping you off (see other thread re wheelbarrows & time value of money). If a lump sum (whether $100k or $140k) how will he get it if he has to turn to you to help pay his loan?
Whatever you do, get professional advice and get everything in writing. It’s his house, his loan and he should first look how he can increase payments without relying on others!
Peter
Personally I wouldn’t do it – business and family rarely mix well.
Also, you are doing yourself a huge disfavour – why not just buy your own property now and bang that 100k on it straight away? That will save you years of interest, believe you me, and quite possibly alot of hassles with this family friend (though I’m generalising here).
aiyaaz,
I wont go into the problems faced with enforcing family agreements like this.
You need to consider whether you think the market is going to continue to climb or settle down.
If you thing the prices will rise then you would be better buying at todays prices.
One idea might be for you to keep the money in the family members offset thereby helping them in the short term until you are ready to buy.
Good luck,
Simon Macks
Mortgage Hunter
[email protected]
0425 228 985Excellent suggestion by Mortgage Hunter. Write up some contracts saying they can keep the money in their offset account but NOT spend ANY of it and also stipulate that you can withdraw the money at any time you feel fit.
That way you’re helping your friend, while also keeping your options open. [
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