What to do with £16000?

Rhys96

Hi,

My fiancee and I will be getting married this summer and as a present my parents are very generously giving us £16000 for a deposit for a house. However, my fiancee and I both agree that we are not currently in a position to buy a house (in terms of location).

My fiancee took out a Professional Loan for £16,500 18 months ago to pay for her post-graduate diploma in law which is to be payed-off over a 10 year period at a total of £26,000 including interest. The value of the loan is currently £18,000 and we have been informed that we can only pay off the balance in one go. She is currently on a 6-month repayment holiday (due to finish in April) and so has not payed anything back yet.

My question is this; would we be better off using my parents money and a little bit of my savings to pay off her loan and save ourselves £8,000 over the next 8 years or should we use the money to try and get on the property ladder as soon as we can?

Many thanks.

somethingcorporate

How would your parents feel if you took their money intended for a deposit and paid back your fiancees loan? I wouldn't be happy if I was giving the money.

Derivative

Rhys96 wrote: »

Hi,

My fiancee and I will be getting married this summer and as a present my parents are very generously giving us £16000 for a deposit for a house. However, my fiancee and I both agree that we are not currently in a position to buy a house (in terms of location).

My fiancee took out a Professional Loan for £16,500 18 months ago to pay for her post-graduate diploma in law which is to be payed-off over a 10 year period at a total of £26,000 including interest. The value of the loan is currently £18,000 and we have been informed that we can only pay off the balance in one go. She is currently on a 6-month repayment holiday (due to finish in April) and so has not payed anything back yet.

My question is this; would we be better off using my parents money and a little bit of my savings to pay off her loan and save ourselves £8,000 over the next 8 years or should we use the money to try and get on the property ladder as soon as we can?

Many thanks.

You would not be saving £8000 over the next 8 years.

If your parents gave you £16k tomorrow, leaving it in a 3% savings account for 8 years, it would become £20268 - so you'd be saving more like £4000, if you didn't buy a house.

If interest rates rise above the current 3%, you might just about break even.

By contrast, if you managed to buy a house, you'd be saving thousands per year in rent payments. I would say that if you can manage it and the repayments on a mortgage will be affordable, get the house.

silo24

Difficult one that.

Personally i would make sure that in the unlikely event that things dont work out between you that you get at least 50% of the money back, if not more.

When my then girlfriend and i bought our house, my parents gave us a similar sum of money for our deposit. We had a 'Deed of Trust' established to ensure that the money found its way back to me rather than her, which was deemed void at the point we got married.

If you pay off this loan, which is, in all probability the best financial course, your investment needs to be protected. Pretty sure your Parents will think the same way.

Rhys96

Well that's certainly a consideration. They're both very sensible people and if it meant saving as much as £8000, I'm sure they would agree (if it was the right thing to do financially). I wouldn't take the money off them just to invest and make more money off and so the reality is it would just sit in a savings account not accumulating the same amount of interest that we would be paying on the Professional Loan.

Rhys96

EdgEy wrote: »

You would not be saving £8000 over the next 8 years.

If your parents gave you £16k tomorrow, leaving it in a 3% savings account for 8 years, it would become £20268 - so you'd be saving more like £4000, if you didn't buy a house.

If interest rates rise above the current 3%, you might just about break even.

By contrast, if you managed to buy a house, you'd be saving thousands per year in rent payments. I would say that if you can manage it and the repayments on a mortgage will be affordable, get the house.

My apologies, I didn't explain that very well. I meant if I payed off the loan (not put the money in to a savings account). If we were to pay off the Professional Loan now it would be £18,000 as opposed to the £26,000 in 8 years time (that's the £8000 savings I was referring to).

I agree with the other comments about a Deed of Trust and that's something that my fiancee is also keen on.

Thanks for the comments so far - very helpful!

Derivative

Rhys96 wrote: »

My apologies, I didn't explain that very well. I meant if I payed off the loan (not put the money in to a savings account). If we were to pay off the Professional Loan now it would be £18,000 as opposed to the £26,000 in 8 years time (that's the £8000 savings I was referring to).

Yes - my point is that you're saving £8000 over doing nothing at all.

Surely if your parents were to give you £16k for a deposit, you wouldn't leave it in a 0% account until you found a house. Or are they planning to give you the money when you do find a house?

Rhys96

EdgEy wrote: »

Yes - my point is that you're saving £8000 over doing nothing at all.

Surely if your parents were to give you £16k for a deposit, you wouldn't leave it in a 0% account until you found a house. Or are they planning to give you the money when you do find a house?

Right, I see now. At the moment the intention is to give me the money when we find a suitable house, but if I explained the situation I'm not sure if that would change matters as they already have the money from the sale of their previous house. I suppose the only difference is that they would be losing interest on it so that we can effectively avoid paying interest on the loan.

The more I think about it the more I feel I'm taking advantage of a fortunate position. Maybe I should broaden my search for a house and use the money for the purpose for which it was offered.

Colin297

Two things occur to me here:

1) If you aren't in a position to buy a house you shouldn't be getting married. Have these large details sorted out before any marriage imo.

2) If they are giving you 16k for a house, that's what it's for. So either: A) Take it and hold it for that purpose (if they allow this ok) or Go ahead and buy a house....

EDIT: I thought it was her parents. I suppose then it depends on what they think.

Rhys96

Colin297 wrote: »

Two things occur to me here:

1) If you aren't in a position to buy a house you shouldn't be getting married. Have these large details sorted out before any marriage imo.

I don't think being able to buy a house is a prerequisite for marriage. As it happens we are in a excellent position financially to buy a house, we're just not yet in the area we would like to be in.

With that said, I do agree that these are things that should be discussed/agreed upon before marriage. It would certainly prevent a lot of problems down the line.

banks4u

Don't pay back the loan. I made that mistake many years ago. Because to get that money back again will take too long. Just put it in a high rate savings bond and continue paying the loan.