Mortgage overpayment idea...

draperd

I'd be interested to know if the following would be worthwhile...

My parents are retired, have downsized their property and have most of their savings in ISAs which are returning around 3%. I have 21 years left on our mortgage which is fixed at around 6% but I am allowed to overpay 10% of the outstanding amount each year.

If my parents were to loan me the 10% of the outstanding amount which I then used to overpay the mortgage, my mortgage repayments would reduce such that I could afford to pay them a return of up to 6% a year make a profit (assuming that I pay them back the loan amount before the end of the mortgage term) because I'd not be paying 21 years of front loaded interest on that overpaid amount.

This seems to make sense to me as although the interest being paid would still be the same but it would be kept in the family (which without being too morbid, I'd be likely to inherit if my parents didn't spend). My parents would also be getting a better return on this investment than they would with their ISAs.

Are there any flaws in this logic? or any legal ramifications of implementing such a plan?

Mallotum_X

Its a better use of the money.

The money your parents receive would be taxable, although many in a similar situation would just keep quiet about that.

The risk to you would be a sudden demand for repayments, risk to your parents is that you dont pay. A legal agreement would solve some problems but cost money, so its down to how much trust there is. Are you able to use an Offset product, many allow parents to have an account in their own names that they own, but you get the benefit of the reduced interest. From their point of view it keeps the money safe, and as its not actually an overpayment, would allow them to take it back if they need to.

dimbo61

You are stuck in a fixed rate at the moment but when the fix ends have a look at YBS offset mortgages and Friends& Family