Pay off Interest Free mortgage with parents or increase pension?

RCG

Hi

I'm 38 years old and have recently bought a property with the help of my parents. I invested £35,000 and they paid the remainder which was £168,000. Currently I am paying back £500 per month and putting £100 into a pension. I would like to pay it off asap but am also concerned about investing for my retirement. One thing I had thought was to focus on paying them back asap, then focus on saving to invest in another property to rent out as a way for extra income in the future.

I could probably save £400-500 per month and would like some advice about whether I should use this to pay my parents back or increase my pension payments?

ONe final thing I must add is that if both my parents were to die then their share of the house would be left to me in the will.

Thanking you all in advance for any help you may be able to offer.

RCG

Lokolo

From a moral point of view - pay back your parents.

From a financial point of view (assuming the loan is interest free) - put some away for emergency savings, and put some away for retirement

RCG

Hi Lokolo

Thanks for your advice.

My heart says pay them back. Maybe I should focus on that for now and review it in 18-36 months?

RCG

hugheskevi

If parents are in any way hard-up or could do with extra cash, I'd say they get first priority.

What were the circumstances in which the arrangement was entered into - could you have arranged a mortgage for the property on your own? Or did they help in order to avoid money leaving the family in unnecessary interest? Was their help at your request, or did they offer/insist?

If they helped out to keep money in the family and don't need extra money for their lifestyle, I wouldn't be too concerned with paying them back as quickly as possible. I'd certainly be putting enough into a pension to get maximum employer contributions (if relevant).

Alternatively, if parents helped out as it was the only way you could buy a property, and could do with extra cash, I'd be putting them as first priority (and paying them a market rate of interest) - as well as working out when I could mortgage property to return funds to them. Any employer pension should still be taken, but I wouldn't be thinking about anything extra.

Given you are going to be paying them back for a very long time, what are their expectations about repayments?

jamesd

You should do whatever your arrangement with your parents was.

You should also consider paying them money instead of interest equivalent to the best after tax interest rate they could receive from a savings account.

If you haven't discussed arrangements with them, discuss it with them to see what their desires and expectations are. They might view it as a way of avoiding inheritance tax if they are well off, and may not actually want any of it back. The avoiding would be the interest, the capital part of the loan would be covered by inheritance tax.

cutegirl57

Friv: Thanks for your advice.

Maybe I should focus on that for now :cool:

RCG

Thanks Hugheskevi.

My parents offered the money to help and strongly encouraged me because they wanted me to get onto the housing market.

I'm in the very fortune position because my parents don't need the money back for their lifestyle but since they have been so kind, supportive and generous I feel the need to act responsibly and repay them asap. However I'm also concerned about investing for my retirement so hence the conflict of interests.

In the past they have mentioned Inheritance Tax and their concerns because their four children(my brothers and sisters) will have a large tax bill when they sadly pass away.

I've just had a chat with my Dad about it and he is going to talk to Mum then come back to me with his expectations. Once I find out more I will let you know.

Thanks again
Rachel

RCG

Thanks James D.

I'll give it some thought and discuss it with them.

Rachel

Carl31

initially, i thought invest into the pension, as there is gain to be made
but then it transpired, that means you are effectively making a gain at your parents expense, considering they just helped you out big time, i think you owe them a debt of gratitude if anything else

dunstonh

I am paying back £500 per month and putting £100 into a pension.

For a 38 year old, paying £100pm into a pension is peanuts. Unless you have been paying that level since your late teens, very early 20s, then it wont be enough.

I would like to pay it off asap but am also concerned about investing for my retirement.

If you are concerned about your retirement then why are you only paying £100pm (which is the minimum contribution level of most pensions currently available).

I could probably save £400-500 per month and would like some advice about whether I should use this to pay my parents back or increase my pension payments?

I would be inclined to do both. However, I would consider the parents financial situation first. If they are suffering then I would move more to them.

RCG

Thanks Carl.