lending £20k

McKneff

need some financial advice please.

We have £20k which is in an Isa. If we loaned this to our daughter instead of her taking a £20k mortgage and for her to pay us back over 10 years, she would pay us back obviously the capital sum and any interest that we would lose over those 10 years.
Our ISA is 3% and we would be happy for everything to be worked out at 3%.

Can anyone do the figures for me, cos i get a bit lost after year 3

halflost

McKneff wrote: »

need some financial advice please.

We have £20k which is in an Isa. If we loaned this to our daughter instead of her taking a £20k mortgage and for her to pay us back over 10 years, she would pay us back obviously the capital sum and any interest that we would lose over those 10 years.
Our ISA is 3% and we would be happy for everything to be worked out at 3%.

Can anyone do the figures for me, cos i get a bit lost after year 3

Whilst his is great in theory for you, if you are concerned about getting back the interest you would have earned on an ISA (and not just the straight 20k) then there is a point where you might look at this and question the interest rate used (as ultimately it wont be fixed at 3% over its life).

Ultimately if you dont want to start compounding your interest payments onto the capital (and then start to work out the value of the loan over time, and then basically calculate the interest and then compound, and any repayments she does would be interest + capital then its simple).

Just say she owes you £600 a year on top of the capital, so total repayable is £26,000. then again, this wont factor in the interest gained on the additional sums, where each year your amount will compund.

So how simple or more difficult do we want to make this?

Something like this will work overall:
Years Capital Repayments
1 20,000 20,600
2 21,218
3 21,855
4 22,510
5 23,185
6 23,881
7 24,597
8 25,335
9 26,095
10 26,878

mark5

There is a calculator in Martin's ISA guide which would help you with these calculations if you want to know how compound interest would total up over ten years, its about 3/4 of the way down the page.

http://www.moneysavingexpert.com/savings/best-cash-isa

Annisele

You should also be declaring the interest you receive on the loan to the taxman - and if you're taxpayers, you'd need to charge more than 3% to give yourself 3% after tax.

TrickyDicky101

Assuming a nominal 3% pa rate paid monthly it works out to £193 per month. Total repayable £23,174.

As Annisele said, legally this income should be declared to the taxman. In reality I am 100% certain very few such arrangements are.

McKneff

Hey thanks all, and also for the link, worked a treat.

Annie