Private Mortgage from parents

threeplatoon

Hi,

Can anyone tell me if there are any flaws in the following plan? Any advice would be greatly appreciated.

My wife and I have a mortgage which is coming to the end of its fixed term. We also have a child who will be going to nursery soon. My parents have proposed a plan to help us with costs during this time. They have suggested loaning us the amount of money required to pay off our mortgage at the end of the fixed term, for a set period of three years, without repayments and with a signed contract to protect all parties. At the end of the three years we would repay the whole amount and reapply for a mortgage. This would essentially give us a three year mortgage holiday. 

It’s obviously a very generous offer but I just want to check if there are any potential downsides that I’ve failed to consider. For example, when we come to apply for a mortgage after three years, will it be harder to get accepted for a mortgage having not had one for three years?

Thanks in advance for any advice.

MovingForwards

What happens if you can't secure a mortgage in 3 years, will your parents still call in the loan?

It won't make a difference if you've not had one for 3 years, obtaining a mortgage is based on your credit history, income, outgoings and the property being suitable security.

Thrugelmir

Why not simply assist with childcare costs? 

secla

Its a generous offer but as said if you lose your job or cant get a mortgage for whatever reason are they going to take you to court to enforce the debt ? Theres could be a crash in prices putting you in negative equity etc.
It may be unlikely but its best to bring these things up in advance to see if they have actually thought it through

Keep_pedalling

Does your parents net worth put them in IHT territory? If so a gift of a smaller sum would make more sense than a 3 year interest free loan.

getmore4less

This is a case where something like the YBS offset plus could be considered.


You keep a mortgage avoiding the issue of not being able to get one later,
Parent loan the money but keep it in their own account and can just withdraw it at any time.


The other issue to consider is what delaying the mortgage by 3 years does to payments.

eg a 20y becomes a 17y full term.
say £100k at 2.5%
20y £530pm
17y £602pm

LRmortgage

Personally I’d look at offset mortgages so that you still have the facility available if you need it / for when you need to pay your parents back. 

Seasalt18

I am not expert on your question but having lived through 4 years of unexpected financial hurdle after hurdle which have been completely out of my hands : I would advise if you can pay anything at all off your private or bank mortgage in the next 3 years do it. Rates are still  low. 

dimbo61

I would also agree with others about Offset mortgages.
If your parents have the cash please check out the YBS offset mortgage with Friends and Family.
The rates are slightly higher but avoid SO many issues do it any other way.
You have a mortgage with a high street lender and can also build up savings in Your offset account while using the " Bank of Mum and Dad to reduce the amount of Interest you pay each month.

dimbo61

I would also agree with others about Offset mortgages.
If your parents have the cash please check out the YBS offset mortgage with Friends and Family.
The rates are slightly higher but avoid SO many issues do it any other way.
You have a mortgage with a high street lender and can also build up savings in Your offset account while using the " Bank of Mum and Dad to reduce the amount of Interest you pay each month.