Bonds?

[ltsddd]

[quote=squat300]one of the terms of my mortgage to my kid is he must come over every friday night for dinner.

well, i see flu’s point.

it would be cool if I were ina position to someday help my kid.

one big problem i see is with having different kids in different life situations. I might think one of them is an idiot for buying a house ina particular situation, while another one is extremely stable and sharp and ready.

one of the worst things parents can do is play favorites. it is very very damaging. ibelieve in fairness amongst kids,a nd it would be difficult to achieve utter fairness as a lender.

what if my kid started haggling with me over his laon rebate cause his appraisal came in high?

therefore i think this should only be done in single kid families or where loans are freely available at all kid’s discretion.

but then would you get to shoot them down if the third kid wa sbuying too much house in your opinion?[/quote]

What if your kid complained that the value of the house is a lot less than what he owes on the loan and wants to default?

[scaredyclassic]

i think i’d just bundle up all my kids loans from the get go and sell them to a money manager in Norway.

[scaredyclassic]

saw ITS A WONDERFUL LIFE last night again. was weeping.

george bailey loaned everyone money like they were family…

[Coronita]

[quote=ltsdd][quote=squat300]one of the terms of my mortgage to my kid is he must come over every friday night for dinner.

well, i see flu’s point.

it would be cool if I were ina position to someday help my kid.

one big problem i see is with having different kids in different life situations. I might think one of them is an idiot for buying a house ina particular situation, while another one is extremely stable and sharp and ready.

one of the worst things parents can do is play favorites. it is very very damaging. ibelieve in fairness amongst kids,a nd it would be difficult to achieve utter fairness as a lender.

what if my kid started haggling with me over his laon rebate cause his appraisal came in high?

therefore i think this should only be done in single kid families or where loans are freely available at all kid’s discretion.

but then would you get to shoot them down if the third kid was buying too much house in your opinion?[/quote]

What if your kid complained that the value of the house is a lot less than what he owes on the loan and wants to default?[/quote]

They end up defaulting against themselves.

[scaredyclassic]

Perhaps long term. But youth is often short term oriented. I remember often just being focused on the upcoming week.

[Coronita]

[quote=squat300]Perhaps long term. But youth is often short term oriented. I remember often just being focused on the upcoming week.[/quote]

You folks do realize that when I was referring to kid, I was referring to someone in their mid 20ies to early 30ies…I mean, it seemed that was the rough age of the OP’s “kids”….

[scaredyclassic]

i
didnt get longterm till 37

Well

Maybe 29.

But.

Divorce?

Also. Market rate mortgage is a bargain and should be taken from a bank not your pa.

[Coronita]

[quote=squat300]i
didnt get longterm till 37

Well

Maybe 29.

But.

Divorce?

Also. Market rate mortgage is a bargain and should be taken from a bank not your pa.[/quote]

Prenump?

[scaredyclassic]

well, perhaps, but this would be a prenup taken out between father/morthin law and unrelatedspouse.

that arrangement seems particularly fraught with peril.

I was up from 400a.m. this morning reading HOW NOT TO THINK ABOUT SEX, by alain boutton. he did not mention this, but it brings it to mind.

[CA renter]

Many good comments here, and scaredy brought up the most important issues WRT making a home loan to a kid: divorce, and “favoritism” in the event the kids and purchasing circumstances are not the same.

In my family, we’ve made multiple loans back-and-forth, including multiple mortgages. (even kids to parents, if the parents’ money was tied up in other investments). ALL loans — whether for a mortgage, car, short-term, long-term, etc. — were documented and carried interest from the time we were legally allowed to work (15 years old).

That being said, not all parents/kids should be involved in these deals, and I would not make a large or long-term loan to a child if they haven’t proven, over time, the ability and willingness to ALWAYS pay back loans **with interest,** no matter their personal circumstances. In the deals between myself and my parents, these deals always worked out VERY well for everyone — the lender got a higher rate than on savings accounts or other similar investments, and the borrower paid a lower rate than what would be offered by a traditional lender. We always documented everything, and everyone understood the consequences of default, etc. It was very much a business transaction, and personal issues were not allowed to get in the way.

I’ve known of a few of these deals in other families that did NOT work out, though. In most cases, it was because the kids bought houses at bubble peaks (in the late 80s and also the most recent bubble), and they walked away from their homes and mortgages. If not for the incredible ability to forgive on the part of the parents/grandparents (not sure I could do the same in these cases), these relationships probably would have been lost. In one case, a divorce was also involved in the default.

[EconProf]

I have also made some of these loans and partnerships with friends and relatives. Most worked out well–some did not.
The key to making these arrangements work is to write down the agreement in great detail beforehand. Invariably the future will intrude, things will change, and different interpretations of “what we agreed to…” will pop up, often ruining the relationship.
When a loan or partnership is being discussed, there is a glow of optimism by all sides about how things will work out. By writing down all the assumptions and terms, both parties will be on the same page, and neither can later twist history to suit their side. It also remind everyone involved that this is a business transaction and a “contract” is present that binds both sides–a good lesson for your offspring.

[earlyretirement]

[quote=EconProf]Run, don’t walk, away from those friendly Chase bankers.
The article you cited gives a good explanation of why: bonds have had a great run for three decades because of declining interest rates. With interest rates now near zero, this can’t continue. If rates merely stay at their current level those bond funds won’t have the stellar rate of return they’ve had recently. If rates creep up, those bond funds will quickly generate very negative returns.
In effect, closed end bond funds have doubled down on their bet that interest rates will continue to fall. They have done this by using leverage plus being close-ended, such that their market value can exceed or be less than their face value of their holdings upon liquidation.
Does this mean you are stuck with near-zero rate of return (actually negative, considering inflation) on your liquidity until you need it? Yes. Thank you, Ben Bernanke.
There is growing evidence we are in a giant bond bubble, much like the housing bubble of 2006. One site pushing that theme is PrudentBear.com.[/quote]

I absolutely agree with EconProf regarding bonds and to run away.

As to the matter of loaning money to friends/family I’m in the camp totally against it. It will work out for many families/friends but I’ve seen WAY too many bad situations that didn’t turn out well and ruined relationships/friendships over it.

[quote=squat300]i think the right answer is, there is no safe way to get a totally safe 5% after tax (or pre-tax) return on money today.[/quote]

Exactly correct. Man I miss the days of CD’s paying above 5%. I look forward to those days again although it will take a few years.

[UCGal]

CAR – my family sounds a lot like yours. We’ve had loans between family members on both my side and husbands side. But they documented with signatures, and were not in any way considered gifts by any of the parties.
Interest rates were typically even or near even with market rates.

One family member, on my side, defaulted. Then he got upset with the parent involved would not issue a new loan. He didn’t get much sympathy from other family members when the parent presented a copy of the signed loan agreement of the previous loan – including payment records showing when it defaulted. He got over it because he knew he was in the wrong.

As long as ALL parties know it is not a gift. Have scheduled payments, an amortization schedule, etc… It can work very well. The problems arise when one party thinks it’s a gift, because the terms aren’t well defined.

[earlyretirement]

[quote=UCGal]

One family member, on my side, defaulted. Then he got upset with the parent involved would not issue a new loan. He didn’t get much sympathy from other family members when the parent presented a copy of the signed loan agreement of the previous loan – including payment records showing when it defaulted. He got over it because he knew he was in the wrong.

[/quote]

UCGal,

Just out of curiosity, did the parents have to force him out of the house? Or did he leave on his own? I have a friend that is dealing with an issue like this now. Everything is well documented and they have everything written but their son refuses to leave.

I can’t imagine how Thanksgivings are like around their house. LOL.

I know you said he “got over it” but did they have to resort to legal action to force him out? Inquiring minds want to know.

[earlyretirement]

[quote=UCGal]

One family member, on my side, defaulted. Then he got upset with the parent involved would not issue a new loan. He didn’t get much sympathy from other family members when the parent presented a copy of the signed loan agreement of the previous loan – including payment records showing when it defaulted. He got over it because he knew he was in the wrong.

[/quote]

UCGal,

Just out of curiosity, did the parents have to force him out of the house? Or did he leave on his own? I have a friend that is dealing with an issue like this now. Everything is well documented and they have everything written but their son refuses to leave.

I can’t imagine how Thanksgivings are like around their house. LOL.

I know you said he “got over it” but did they have to resort to legal action to force him out? Inquiring minds want to know.

[Author]

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