[quote=flu]
So…to add drama to this saga…..after going through this refinancing, one of my relatives (distant aunt/uncle) on fixed income were complaining that their money is earning pidly 2% on a CD/etc….
So they offered to make me a personal loan at 3.5% for 15 years for the same amount, secured by my home.
I’m thinking about this…I get slightly better rate, my relative gets a slightly better return, the home is secured from their perspective since the LTV would be less than 50%…I’d still get my tax writeoff on the interest..It cuts Bank of America(who purchased loan) out of the equation…Doubly great, since I’d rather send the interest to someone I know than that bank…
The drawback I think would be, it’s a lot more paperwork to keep track of from the IRS perspective, and also mixing money with relatives is usually not a good thing. But in this case, it’s a real secured loan..Other drawbacks are that they probably could find something with higher returns, especially if rates creep up.. Conversely, if rates fall lower, it I guess I could either renegotiate with them or find a bank to refinance again…..I’d say my chances of defaulting are pretty low, since I’m am pretty “safe” investment, I think… 🙂
So, what says you? Should I try to borrow from said relatives?[/quote]
I agree with CAR. I’ve been the recipient and the lender of family loans… and I’ve also seen it backfire.
My dad loaned me enough money to get to 20% down on my first house. (I only had about 13% saved). In exchange, he was on the title and I paid him regular payments with interest on a standard amortization schedule. We had a loan agreement formally written up.
He lent money to my brother, who’d make a few payments then have issues and excuses. A few years later he’d want to borrow more. It caused quite a bit of tension between them after my dad stopped lending.
We’ve lent money to my brother-in-law for a real estate deal (he was buying an apartment building and was short about 1/2 until he sold another apartment building.) Again, we had clearly defined terms, interest, a payment schedule, etc – all in writing and notarized.
The terms in both cases were shorter than 3 years, so we didn’t bother to record the transactions.
I think the problem in family loans comes when the terms aren’t clearly defined… Parent makes a loan to their grown child – and the kid treats it like a gift… Or the terms are “pay me back when you can”… Those are the scenarios that set you up for bad transactions. I have had friends ask me why I made regular payments to my dad when I owed him money… didn’t it just go against future inheritance. I guess their family operated differently than mine.
