How much interest to pay mother for loan??

jukes_2

Hi
My mother has offered to give me £95,000 to pay off my mortgage and I will pay her back monthly instead of the banks! Kind of mortgage free then?!?!
However, we don't know what would be a fair amount of interest? This money is currently in her savings account which has a poor interest rate of about 1.5% plus she pays tax on it.
My mortgage tie in ends in May (so I would do it then) when I'd go on to SVR (or remortgage to a better deal the loan is only about 35% of the house value so I'd get an ok rate)
It's hard to know what is a fair amount to pay her so we both gain and bearing in mind it will probably take me about 10 years to repay so rates will be changing!)
I could pay up to £1000/month to her.
Thanks

Trying_to_be_good

Partly it depends upon whether she wants a charge on the property to cover her 'loan' to you (this gives her some legal comeback, and is useful if there are other siblings who could feel out out by this arrangement).

If you pay her interest she needs to declare it to the authorities as unearned income and pay the tax on it. If you were just to buy her something nice after you'd paid back all the capital, she probably wouldn't have to declare it.

If she's prepared to 'give' you the money, it would take it out of her estate for inheritance tax purposes (albeit subject to the 7-year survival calculation). This could also affect her ability to claim benefits, though.

Many would advise not to mix money and family/friend relationships, so think carefully before you go down this road.

Hope this helps, sorry if it sounds really pessimistic.

pingua

Sounds like a good idea to me ??

As for what would be a fair amount of interest, think that would be between the two of you to decide. Perhaps she just wants to help out and is not looking to make anything/much??

pixiepie99

You could agree a certain percent over base rate to keep in line with savings/mortgage rates (like a tracker). Otherwise you'd need to renegotiate everytime something happened to base rates which could cause a fall out at some point along the line. I guess you want to go with something similar or slightly higher than conventional savings rates but lower than conventional mortgage rates.

jukes_2

I looked at the interest I currently pay on my mortgage and as interest is paid daily it's a scary amount over the 30 year term!!
I wondered if savings accounts pay interest daily as I can't imagine savings of the same amount would gain so much interest!!
I am thinking to contact a financial adviser, pretend I have the £95,000 my mum would lend us to invest over 10years and see what the total interest would be from an instant access account. This would give a rough idea on how much interest my mum would have got. It's got to be less that what I'd pay on a mortgage over 10 years!! Yes, it would however change over the 10 years so need to see how that is taken into account!

Trying_to_be_good

jukes wrote: »

I am thinking to contact a financial adviser, pretend I have the £95,000 my mum would lend us to invest over 10years and see what the total interest would be from an instant access account.

From 30 seconds tapping stuff into Excel, I make the interest (pre-tax) on an intial £95,000 deposit, over 10 years:

• at 2% £20,804
• at 3% £32,672
• at 4% £45,623
• at 5% £59,745
• at 6% £75,131

This assumes you leave the £95,000 plus the interest in the account, i.e. interest is compounded (interest paid on interest).