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AIBU?

Share your dilemmas and get honest opinions from other Mumsnetters.

Original poster

To think my parents are weird for charging interest on a loan?

162 replies

aretheymean · 19/03/2008 13:00

I'm genuinely interested to see what other people think about this one. (have namechanged for annonymity)

Background: my parents are both retired, live in a mortgage-free house, have a more than adequate retirement income and do not have extravagent tastes. They recently sold their second house (with no mortgage) so have a large sum of capital.

They have offered to lend me and dh a considerable sum of money, basically as a bridging loan to buy a house before we sell the one we are in.

We have agreed to pay the bank base rate in interest, which will amount to roughly £1000 a month.

I was telling my friend about it and her response was "oh my god, bank of mum and dad don't charge interest!!!!"

I am now thinking they are being pretty mean (although clearly totally within their rights) in charging us interest - what do other people think?

(I have to go out now but will check back later)

OP posts:
princessosyth · 19/03/2008 16:28

I think that is uncalled for Chequers.

My parents don't have a pot to piss in and everything I have I have worked bloody hard for so I hardly think that I am a princess. . I have never borrowed money from anyone because quite frankly I am an adult and I am responsible for my own finances. I do feel that the OP's parents are being tight by charging interest, it just wouldn't occur to me.

MadameCh0let · 19/03/2008 16:30

You might as well borrow from a bank then. Less scope for falling out.

Falling out over this money seems almost inevitable when they are taking it as seriously as a bank would. Just borrow it FROM a REAL bank.

TheFallenMadonna · 19/03/2008 16:32

Really? I think if I were losing well over £1000 a month in income, and risking a very significant amount of capital, then trying to reduce the loss might very well occur to me.

TheFallenMadonna · 19/03/2008 16:33

As I said earlier, on a smaller amount of money, it would be less of an issue.

Joolyjoolyjoo · 19/03/2008 16:39

They are within their rights, but my dad lends us money all the time and never charges interest . I'm sure you all think I'm a spoilt bitch, but his reasoning is that he is going to die and leave it all to me anyway (only child), and by the time he does I probably won't need it. He reckons that this is the time in my life when I will be poorest, and so he is happy to help us out now, rather than keep it all for later. We really are skint at the moment, with 3 under 5 and a big mortgage, so we really appreciate it! If he needed it so much that he had to charge me the standard interest rate, I would probably prefer to borrow elsewhere with the same rate, if possible. It really depends on how much your folks need the money and what they would otherwise do with it. And on your circumstances. I think its a personal thing.

HereComeTheGirls · 19/03/2008 16:45

If they are losing over £1000 a month in income, I think YABU. Would YOU like to lose £1k a month?

Squiffy · 19/03/2008 16:48

1,000 a month equates to borrowing £250,000. That is big money in anyone's book and am horrified that people thnk it ok to take that money without paying interest. I personally would feel very unomfortable if I didn't pay interest on such an amount.

doublethetrouble · 19/03/2008 17:08

My parents lent me the deposit on my house so that I could get on the property ladder. To do this they had to raise this money on their mortgage. I pay them the extra interest each month it has cost them to raise this money.

They are not being tight but it is costing them money doing me this favour and lending them money.

If they had not done this 4 years ago and I'd have waited x amount of time for me to save for a deposit I would never have been able to afford a property prices went up so much I am therefore really grateful they have done this for me.

They only charge me the amount it is costing them to lend it me. Your parents are only charging you the amount they will lose through having it invested (probably less actually) therefore they are not being mean just covering their losses.

Original poster
aretheymean · 19/03/2008 19:47

Sorry only just had a chance to get back on and haven't been able to read everything yet!!
thanks for everyone's responses and quite amused to see that about 99% think I am being unreasonable so far!!

In my defence I would just like to say that I have absolutely no problem with them charging interest, I just think it's a bit weird that's all! As a parent myself, if I was in no need of the money I would not charge interest, I would just feel great that I was in a position to help my child out.

I totally take on board all the comments saying I am being an ungrateful so and so, I guess I just haven't had my mind changed yet...I have to go again now as ds is crying. I will read the rest of the posts and reply in more detail later.

OP posts:
Original poster
aretheymean · 19/03/2008 20:38

Ok, more time now. Sorry too many posts to respond individually but on reading all of them my thoughts are:

  1. I'm not ungrateful, we're incredibly grateful that my parents offered this money and we offered to pay interest, which we agreed with my parents would be the base rate. I know the vast majority of people would not have the possibility of borrowing this kind of money from their parents and I don't take it for granted at all. But that wasn't the point of my question (or at least not to me it wasn't)
  1. I agree they are totally within their rights from a financial viewpoint to charge the interest - it covers what they would be getting if they had the money in a building society. So, financially they won't lose out at all.
  1. I am not talking about us not paying the loan back - this will be repaid as soon as our sale completes. The only issue is whether or not it is weird to charge interest on top... The interest won't come from our house sale, we will have to service it by taking out a larger mortgage. None of it means we will be in financial straits (otherwise we would not borrow the money from them), but it will mean we have a larger mortgage to pay out. I just know if it were me and my children I would do it differently.
  1. I guess my approach to money is just different to that of my parents. So long as you have enough for yourself, money to me is there to help people with. Hence me and dh have lent money to various friends on lots of occasions. And haven't asked for interest because on those occasions we haven't needed it and they have. If I was in my parent's financial situation I would be using that money to help my kids sort their lives out. Me and dh are sorting our finances out now so we will be able to use our spare cash in the future to help our kids with houses.

Anyway, I find it very interesting that pretty much no-one sees it the same as me.

PS For the person/people who suggested I have expressed this to my parents - I have not and I won't - it's totally up to them how they do it and we are just grateful and will pay all the interest to them.

OP posts:
expatinscotland · 19/03/2008 20:45

i don't see it the same at all, aretheybeing.

pensioners may seem to have a lot of money, but i always think about how they may need to live on those assets for a long time without working, and that that money is there for them to provide for their retirement, and enables them to buy care for themselves if they become incapacitated so they won't be so much of a burden on their families, to buy prescription drugs, to purchase treatments privately that may not be able to get on teh NHS, etc.

it's their insurance. it's not like they can go and start a new career and earn money.

your life is very sorted.

this loan is not a matter of real necessity.

you have a roof over your heads. you don't need to move until you sell your house.

that's probably how they see it.

i don't blame them.

personally, my father is very astute financially, and it's served him very well. but he'd never loan me money if he felt it were for a poor financial decision that had the potential for disaster. and i would trust her judgement.

you're very lucky they're even offering you at all.

because it doesn't sound like a very low-risk option in this current financial climate.

runragged76 · 19/03/2008 20:46

I don't understand the whole bridging thing - it just sounds like a complete waste of money full stop to me, when I've moved, I've always timed it so that the completion dates cross over within weeks rather than months - or sell my house first and rent a tiny flat for 6 months, even with rent and storage costs this must still be cheaper than the bridging thing. But must say, you are lucky to be in a situation where your parents can lend you money, and if they are charging you less interest than the bank, then you shouldn't be feeling hard done by . Perhaps your friend is just used to having things handed to her on a plate???

ib · 19/03/2008 20:47

You say kids (plural), which suggests you have siblings...would you think it was normal for them to loan you the money interest-free if they are not doing the same for your siblings?

pulapula · 19/03/2008 20:48

I think you are very lucky that they have lent you the money and only at base rate. Do you realise how much bridging loans cost? They are doing you a BIG favour.

If they are lending the money, it should be on their terms. It's costing them money in lost interest and saving you money on an expensive bridging loan.

YABU.

iamdingdong · 19/03/2008 20:49

YABU why shoudl they lose out on their income?

Hulababy · 19/03/2008 20:50

We borrowed money for similar reason a few years back from PILs and paid interest. We offered it. We insisted on matching the same interest level they'd get in tehir savings account. Didn't occur to us not to.

cory · 19/03/2008 20:53

I'd watch this friend, sounds like she is out to stir up trouble.

expatinscotland · 19/03/2008 20:53

yeah, no fees, too!

and the potential for them not to get paid back straightaway as with a normal loan.

and if you do think of it in teh way of, 'well, they've got a lot, why not lend it to me freely' think of your siblings.

if they died whilst you had the money, and they hadn't altered their wills to reflect that, would you pay it back to make things even amongst your siblings.

seriously, you're very lucky.

my dad would have told me to sell the damn house first and rent. wouldn't have even offered.

and i wouldn't have considered making such a risky move in this environment, either.

Hulababy · 19/03/2008 20:56

And no we don't normally do it. But it was a long while back and we were buying a house, and our sale fell through so to secure the house we needed to do this - it was PILs who offered the money, we were going t get a noral loan for it.

Chequers · 19/03/2008 20:56

Message withdrawn

Original poster
aretheymean · 19/03/2008 20:57

Don't mince your words EIS:

"a poor financial decision that had the potential for disaster"

gotta love mumsnet for giving you opinions on something you never asked for!!

EIS and Runragged76 - we have our own very good reasons for wanting to get into this situation and have weighed up the risks/benefits. Thanks for the financial advice though.

EIS I do take your point about pensioners needing their money to live on for the rest of their lives. But they have a more than adequate lifetime income and in any case they would get the capital back.

Re siblings - yes I do and actually they have already lent a similar amount of money to them. I think they paid interest too, not entirely sure though.

OP posts:
HonoriaGlossop · 19/03/2008 21:00

I guess every family is different but thinking about it from my family's point of view;

what would happen is, my parents wouldn't even think of charging interest; they just wouldn't suggest it. However I would not hear of borrowing this sort of sum of money which will incur pretty considerable loss of interest income for them, without adding on interest.

So I think it's you who are being a bit mean, aretheymean, for not considering it in the first place.

Maybe get your bridging loan from the bank and save any awkwardness.

Original poster
aretheymean · 19/03/2008 21:00

Joolyjoolyjoo - sorry didn't see your post before. I totally agree with you!! I'll be like your dad when my kids are older.

OP posts:
Hulababy · 19/03/2008 21:01

You say they are retired, so this saved money is their income source. They have no idea how long that capital will have to last them; interest maintains ther income level.

It is definitely NOT wierd. It makes complete sense to me.

I would not dram of borroing money from somone and not want to (actually we would insist we did) pay them the money back including what they would lose in tehri interest.

A bridging loan would be costing you way more interest each month, plus an arangement fee - so the arguement re needing a larger mortgage to cover it would be the same; infact you'd need an even larger mortgage if it was a bidging loan

girlfrommars · 19/03/2008 21:02

How come you get to decide what's 'enough' or 'comfortable' in terms of their income or how much of their money is 'spare'?

Do you really know all the ins and outs of their pensions, including how it would effect their income if the major earner died?

You presumably already had a house, so maybe they don't see you as being 'in need'. They have effectively given you money that they won't get back anyway- they could get much more interest on the money as savings than you are paying them on the loan.