Money Moral Dilemma: Should I pay my parents interest?

andrewbarnes

mrsammyp wrote: »

I think we all have different opinions on whether or not parents should lend their children money and if this should include interest, either way it should have been discussed upfront.

Personally based on the limited information we know, I think that presuming you have made a nice profit on the house which may have not been possible without the £7k loan, it's a small price to pay. Its not like you have repaid the £7k off quickly, but agreed £60 over a ten year period which is very minimal.

The terms said £60 PER MONTH, which is £720 per year, or £7,200 over your suggested 10 years - hardly minimal!! £60 per month is over 10% per year, which seems extortionate as "interest".

That said, I agree that terms should have been agreed up front - it depends on parents' current circumstances.

marich

You were paying a never-ending 12.8% for the money , which is a huge return for your parents (look at annuity rates) ! You could say they were effectively taking unfair advantage of your desperation to "buy" (get into debt for) that house .

I would have thought you could have borrowed from another source at significantly less than that - so why couldn't you see either of these things and do something or negotiate fairly ?

Now you are getting screwed again ! I just hope you made some money on paper from the house so as you can come out of the deal decently enough to repay your parents .

Pay them all of it now and lift that endless and unfair burden off your back . Just do it - and say "Thank you" - and DO NOT put yourself there again !

Quite honestly it sounds like you (and your parents) need a wake-up call - and , most certainly , an arithmetic lesson!

pollypenny

If interest was not mentioned at the time of the loan, then no, you shouldn't be asked for it.

A bank does not impose extra interest when a loan is paid off.

However, it's very tight-fisted for a parent to charge interest to their kids anyway.

tain

If I were to guess, which is all you can do with these dilemmas, then I'd say that the parents lent the money with the clear intention it was paid back in a short space of time.


Roll forward many years and a ton of aggro trying to get the money back. The kid sells the house and has some spare wonga. Now the parents say thanks, plus you can pay all the interest we lost when you didn't bother paying us back like we agreed.

tallgirld

Wow they want interest!!

Gosh what kind of tight parents are they??

If there wasn't an agreement on interest I wouldn't pay it.

lilychapman

I agree that there should have been a clear agreement when the loan was made.
I am facing a similar decision with one child needing significant help to buy a house where the other one has made different life decisions and is now a home owner. The loan is more than I can afford to give so the agreement is they will pay me back with a small amount of interest because I use my savings to live on (but interest rates are very low for savers.)
Should I die before they can repay me then then I want a proportion of their house value taken into account in the estate. This seems fairer to the child I didn't help out in the same way. She could have put that money into her house with less mortgage and increased her investment in the housing market.
So yes! In fairness you should give your parents some interest as they may have a similar predicament.

minicooper272

I think you have 3 options here:

• View it as your parents having a stake in your house – e.g. if the house cost you £140k, £7k is a 5% stake. If you sold it for £170k, your parents may feel entitled to £8,500 back (but it should be less what you’ve paid already).
• Investigate fixed term ISA’s. If you’ve had the loan for 5 years, compare to the best 5-year fixed term ISA going and work out the interest rate. Give them that as interest on the loan.
• Consider how much interest would have cost you to borrow this money from the bank and add that on.

I’d feel resentful in your shoes (especially as we wouldn’t have factored in a £7k lump repayment when we purchased the new house). I think you will simply have to negotiate with them in the interests of maintaining your relationship (although it looks like a no-win situation)! My OH and I borrowed £5k from family when we bought our flat, and as a condition of the mortgage, they had to sign a piece of paper stating the money was a gift and we were not required to repay it at all. I presume you will have something similar that you can use as leverage? They maybe feel a little resentful about something themselves though, who knows!

supersaver2

pendragon_arther wrote: »

If I lent my kids money like this I would never, ever dream of charging them interest. I think parents like this with this attitude aren't kind loving mothers and fathers. In fact I believe these people to be tight-fisted nasty rsoles.

Indeed, I'm a parent and would never, ever charge interest on money I lend to my children. In fact even lending to other family members which I have done in the past (lent my twin brother a few grand towards his house deposit) and it would never occur to me to charge him interest!

lincoln_dj

2 options. pay what they're asking to keep them sweet.
pay nothing and keep the £7k!! sounds like you're going to fall out whether it's just the 7k or nothing gets paid anyway!

GreySpike

I was in a similar situation with my parents, and I'm now a parent with grown up kids.

This wont be the first time that parental deals came with hidden strings attached; I certainly knew by the time that I got married that the 'gift' from my parents would come with hidden strings, even though I had asked multiple times what they wanted in return.

It did indeed; within a few months it became apparent that my parents thought that they were entitled to free room and board at our house whenever they felt like turning up.

But I reminded them of the conversations we had had where they had stated that they expected nothing in return, and we had already started paying them back.

Alternatively, this really is the first time that hidden strings have appeared in family deals, in which case something else is driving the parents behaviour.

Perhaps they are feeling the pinch, or maybe even just jealous that you have your dream house whilst they feel that they passed up on some other opportunity.

Either way, talk to your parents and treat them with respect, and treat yourself with respect as well.