Cant work out if this helps us or not!?

richleeds

Hi

We need a mortgage of £135,000 as we are moving house.

However my Mum has offered to lend us £40,000, so we need to borrow £90,000 which has been agreed by the bank on a 5 yr fix at 5.89.

My Mum will want her lump sum back in 5 years at the earliest but she might not want it back for 20 years, the agreement we have come to is we can use the lump sum at a charge of 3% a year which means we give her around £20 a week.

So am right in thinking this is advantageuos to us as it means we borrow £90,000 at 5.89 on a repayment mortage and £40,000 at 3.0 on an interest only loan.

Cant quite get our heads around this being a good or bad thing to do?

Thanks

Rich

beecher

You say you 'need' a mortgage of £135,000 but you need to think whether you will be able to afford it in 5 years if your mum wants her money back. If you can do so easily, then it sounds like a good thing to do - if not you need to think carefully about how you'll pay the money back.

richleeds

Thanks for the reply.

We had originally budgeted getting the whole £135,000 from the bank prior to the offer of £40,000 so I think we should be ok. I suppose the other option is to put away the eqivilent of the repayment on the £40k into a high interest savings account so it builds up over the years.

Again, would this make sense?

fudgecat

An excellent idea to pay the equivalent extra payment you would apply to a whole loan of £135000 into a high interest savings account. You should be able to find out quite easily how much a mortgage at the same interest would be for the full £135000 and the difference between you currrent payments on 90000, you bank. The interest you can gain will more than compensate for the 3% you are incurring and you will have a pot to draw on for your relative in case of any emergency need for cash. Should the sum need to be repaid in the earlier timescale of 5 years, you will have some of the capital and therefore need to remortgage or obtain a loan for less than the 40,000 due.
The decreased loan from the bank also makes your LTV rate much better which may have influenced you obtaining a mortgage in these difficult times.
Nice MUM! Buy chocolates.

neverdespairgirl

Won't you have to declare the borrowed desposit?

opinions4u

neverdespairgirl wrote: »

Won't you have to declare the borrowed desposit?

You would, assuming the question is asked, and most lenders would ask "where is the deposit coming from?".

If you say "Mum" they don't care. If you say "Geoffrey Robinson and he's going to put a charge on the property to secure it" they may not be quite as keen.

Still, you could do a Mandelson and not declare it, effectively committing mortgage fraud, resign your employment and get a job in Brussels on a higher salary.

getmore4less

richleeds wrote: »

Hi

We need a mortgage of £135,000 as we are moving house.

However my Mum has offered to lend us £40,000, so we need to borrow £90,000 which has been agreed by the bank on a 5 yr fix at 5.89.

My Mum will want her lump sum back in 5 years at the earliest but she might not want it back for 20 years, the agreement we have come to is we can use the lump sum at a charge of 3% a year which means we give her around £20 a week.

So am right in thinking this is advantageuos to us as it means we borrow £90,000 at 5.89 on a repayment mortage and £40,000 at 3.0 on an interest only loan.

Cant quite get our heads around this being a good or bad thing to do?

Thanks

Rich

The key is if she wants/needs it back how do you pay her, borrowing at a low rate is good you need a plan to pay her back.

A remortgage in 5 years has risk, you may not earn enough(job loss) or prices could have dropped to make releasing the £40k an issue.

Can you set up a fexable arrangment with the current lender?
Will you be able to save £40k in 5years?

What is the follow on rate on your 5y deal.

I would get the £135k now if you can and then work something out.

I would get an offset for £135k and offset the £40k.

You have instant access to the money when needed.

Offset rates are close enough to regular rates to not be an issue.

First direct have a no fees 5.79% offset tracker.