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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:
expatinscotland · 19/03/2008 21:04

Hey, arethey, don't want to hear people talk about your situation, don't ask on the www.

Seriously, we weren't the only people who said it had to potential to go Northern Rock.

But hey, I don't mind being singled out.

And I'm with Joash's post of 16:15:35, as were plenty of others.

If you want someone who didn't mince words, try re-reading her posts.

AliciaJohns · 19/03/2008 21:04

Not read whole thread but can't see my mum and dad doing this so in that sense i consider it a bit odd. I don't think you do that to family. If my parents offered to lend me money I would do something for them in return, such as send them out for a really nice meal or something like that to show my gratitude, but I can't imagine any situation where they would charge me interest! Nor can I imagine charging my kids interest if and when they need to borrow money in years to come.

Some parents wouldn't lend money to their kids under any circumstances though, even if they had it, so don't feel too bad!

Hulababy · 19/03/2008 21:06

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

Wow! That is a big amount you are borrowing. We borrowed a fraction f that and insisted on paying interest.

There is no way on this earth I would allow my parents or inlaws lose that about of money each month! Wouldn't dream of it. I would be paying them the interest without a doubt.

They are not mean at all. They seem very generous.

I think you are being very unreasonable to even let it cross your mind that they are being mean TBH!

pointedegg · 19/03/2008 21:08

I think the op makes a good point when she says it depends on people's attitude to money. I don't think you deserve to be roasted over this, meanie.

I have no experience of this sort of large scale familial money-lending, but charging interest seems stingy to me. However, I accept it's the parents' money and I can see they might want to keep as much as they can.

Very subjective. AN interesting question. Leave op alone

amytheearwaxbanisher · 19/03/2008 21:09

not what i would do but they are doing you a favour and they would get interest on it if they left it sitting in a bank

runragged76 · 19/03/2008 21:09

Sorry TE - wasn't giving you financial advice - just saying what has happened ime

AliciaJohns · 19/03/2008 21:12

Can I also just say that money is the WORST thing to argue about with your loved ones, so in this situation I would go along with what they have suggested however you feel about it, it's definitely not worth bringing up. But I don't think you are being unreasonable or ungrateful, I think you just clearly have a slightly different attitude towards money than your parents... and most people on here as it turns out!!!

pointedegg · 19/03/2008 21:12

And - here comes big generalisation - I think people with less family money are far more likely to think this is stingy than those with a reasonable supply of family money. If that makes sense.

patheticgirl · 19/03/2008 21:15

Looks like you are borrowing a hefty £225k or more. Is the house you are in now under offer? If not your parents are taking a very large risk in a climate such as this. Do you feel comfortable putting your parents' hard-earned money at such risk? The reason bank bridging loans are so costly is directly related to their perceived risk!

Personally I wouldn't even dream of borrowing such a lot of money from my parents, so the question of interest wouldn't come into it!

YABVU!!

fedupwasherwoman · 19/03/2008 21:16

No they are not weird, just practical and fair minded.

They are saving you loan arrangement fees and the difference between base rate and bridging loan rate (which is a scary rate to consider in the first place) so they are effectively discounting the loan interest for you and saving you charges.

They are also sticking their neck out for you financially at a time when the UK housing market is possibly teetering on the edge of a substantial drop in values.
If you buy the second property at peak prices and then there was/is a dramatic property value crash before you can sell your current home will you still be able to reapy the whole amount borrowed from your parents ? This is the risk that they are taking. Mortgages are getting harder to obtain if they are a high percentage of the property value and there are no cheap deals around, lenders are getting very nervous so your parents are taking a risk to save you money.

I would ignore your ignorant friend as there is a massive difference between borrowing say £5,000 at which level it probably is more understandable to not bother charging interest and borrowing the sum involved for your personal bridging loan.

evie99 · 19/03/2008 21:34

Aretheymean, as someone else said all families deal with money differently and of course so do different cultures (am I right in thinking that the Muslim religion does not allow interest on loans?).

So it is a complicated and interesting dilemma, as other people have said involving divorce law issues as well as tax issues. I sat in (as a Trainee solicitor) on a divorce hearing involving a family "was it a gift or a loan" dispute. The MIL tried to say that money she had given in the marriage was a loan, but there were no records of repayment or written terms so she and her son lost and the ex DIL kept the money.

I think in your case, as it is such a large amount of money and a possibly open ended situation, your parents are being reasonable and generous. It provides clarity and certainty for all parties which is probably best in a family.

expatinscotland · 19/03/2008 21:38

Exactly, evie. When I worked as a PA for a judge in civil court, there were several cases of 'was it it a gift or a loan' that came up. They'd gotten very nasty, obviously, to have made it to that level after much unsuccessful mediation.

evie99 · 19/03/2008 21:53

Yes expat, such cases can become very bitter and hugely expensive. In the case I referred to, the judge gave my firm (who represented MIL) a sound telling off as we had wasted so much of her money on court fees on what was essentially a lost case from the outset. As someone else said (camilla I think), put it all down in writing.

expatinscotland · 19/03/2008 21:57

Absolutely, evie, particularly in a balance of probabilities setting, having something in writing is paramount.

CountessDracula · 20/03/2008 11:10

you say that you are not talking about not paying the loan back and that this will be repaid as soon as our sale completes

What if it doesn't?

Have you and they really considered the implications of this in the current climate

totalmisfit · 20/03/2008 11:30

my initial readtion was not unreasonalbe as it did seem odd to me but reading the other posts i can totally see why they are doing this. does seem like a bit of a gamble for all concerned given that house prices may fall in the not too distant future. might be hard for you if you find yourself in a precarious position with an overpriced house and in debt to family. but sooner them than a faceless bank who don't give two hoots about you i suppose.

catsmother · 20/03/2008 20:50

"3. 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."

I think, given the above statement, that the question to be asked is not whether or not your parents are being mean about charging interest, but whether they should effectively give you thousands of pounds. No-one is suggesting you don't intend to repay the capital, but once you've done that, they will still be out of pocket by thousands (assuming you don't sell and complete in record time).

To the poster who suggested that she'd take her parents out for a nice meal to show her gratitude ..... well ...... in this particular case, a "nice meal" in lieu of thousands lost would, IMO, be quite insulting ! Maybe different if you're talking a couple of hundred quid instead of a couple of hundred thousand !

SenoraPostrophe · 20/03/2008 20:52

£1000 a month is roughly what they'd get if they didn't lend it to you though isn't it? why should they lose that?

I think you're being ungrateful actually. do you know how much commercial bridging loans cost?

Joolyjoolyjoo · 20/03/2008 23:02

Again, I guess everyone's family is different! My mum and dad went from having very little, to making some good investments and being quite comfortable. Mum got ill and subsequently died. Dad is now well off, and realises that money is not the important thing. He would give it all away to be back with mum in the days when they were poor and she was healthy.

To this end, when the house next door to him came up for sale, he helped us buy it, for which we are really grateful. it is a great house, and we couldn't have afforded it on our own. He gets to see the kids every night, and enjoys them immensely. I cook his dinner for him every night (I know- small potatoes to the thousands he has leant us, but he appreciates it!!) He has already had a minor stroke and although he is fine now, I have the comfort of knowing that whatever happens, he will NEVER have to leave his home- I will be able to care for him if it ever becomes necessary. This is not something he has bought. Should he become infirm, should I charge him for his care?? Should I charge him for his dinners? We will always look after each other, because we are family, and whatever we can do we will, without putting a price on it. I know people here seem to think it's outrageous that parents shouldn't charge interset, but do you charge family for your time? For favours? I think the critical thing is whether or not the OP's parents can afford not to charge interest. I know if it was us, and dad couldn't afford it, he would tell us that. No, parents have no obligation to help, and they have no obligation not to charge interest for their help, but I do think the OP is getting a bit of a battering, when we don't actually know her parents' situation, and the closeness of the relationship!

bigwombat · 21/03/2008 09:38

That sounds really lovely jooly. I agree, some things you can't put a value on.

jajas · 21/03/2008 09:51

This reply has been deleted

Message withdrawn at poster's request.

Cammelia · 21/03/2008 09:57

If I ever borrowed money from my parents and they wanted to charge me interest, I would borrow it from a financial institution. It makes no sense to me to get involved in a potentially unpleasant scenario (eg. they suddenly want it all back quickly for whatever reason)if there is no financial advantage.

What I would do as a parent is to give money (if I could afford it) to my dd's to lessen inheritance tax and capital gains tax.

I would prefer my children to have my money rather than the govt.

DelGirl · 21/03/2008 09:58

I think it's perfectly reasonable to charge you interest. They're doing you a favour! If they didn't, it'd be costing them alot of money.

scottishgran · 21/03/2008 10:03

You are lucky to have such helpful parents. You can take longer to look for a suitable house than you would if you were borrowing from a bank. I have seen money split families so at least this way everyone is happy. Different if it was a couple of hundred pounds to get repairs done on a car or something similar.

fircone · 21/03/2008 10:23

some years ago when we were on our uppers the pil leant us £750. they then charged us the top rate of interest they could find on the repayment. Now that is what I call mean.

I know many will disagree, but I think that parents DO have some duty to help their children with housing. I was speaking to a neighbour who was moaning that her dd couldn't afford to buy anywhere at all to live at 33 years old, and then she went on to say that she and her husband had only paid £40k for their house and now it's worth £800k. I was thinking "Couldn't you help her out?"

I know it's been discussed before on here, but there do seem to be quite a lot of selfish sixty-somethings out there who are basking in their largesse and feel no obligation to sling a lifebelt out to the next generation.