Interest for the elderly?

[Alan H]

I was wondering if someone could see any problem with the following.

A friend of mines mother currently has about $50,000 sitting in a bank account receiving little or no interest. Her son has suggested that she at least put it in a term deposit where she could get say 5%. Her son has a mortgage.

I was just thinking, what would stop her loaning her son the full amount, he put it on his mortgage and simply pay her what he would normally pay as mortgage interest. This would mean she would get the 6.5-7% instead of the bank which is better than 5%.

He wouldn't really be getting any advantage as he's still paying the same interest but if they were both happy to come to some written agreement where she received the interest by direct deposit at regular intervals, and the money was not used for any other purpose and could be provided on request, then surely this would be a better option for her?

I can't immediately see any tax implications for him and as long as she paid any required tax on the interest she received, then what would be the problem?

Any thoughts?

 

[DaleGG]

Hi Alan

There is nothing wrong with this approach at all and providing she declares the income in her tax return, she cannot get into any trouble at all.

Dale

Originally posted by Alan H
I was wondering if someone could see any problem with the following.

A friend of mines mother currently has about $50,000 sitting in a bank account receiving little or no interest. Her son has suggested that she at least put it in a term deposit where she could get say 5%. Her son has a mortgage.

I was just thinking, what would stop her loaning her son the full amount, he put it on his mortgage and simply pay her what he would normally pay as mortgage interest. This would mean she would get the 6.5-7% instead of the bank which is better than 5%.

He wouldn't really be getting any advantage as he's still paying the same interest but if they were both happy to come to some written agreement where she received the interest by direct deposit at regular intervals, and the money was not used for any other purpose and could be provided on request, then surely this would be a better option for her?

I can't immediately see any tax implications for him and as long as she paid any required tax on the interest she received, then what would be the problem?

Any thoughts?

 

[Alan H]

Thanks Dale.

Much appreciated.

 

[Macca]

Hi Alan,

A problem could arise if his mother should need the money back.

If he has a redraw facility then OK or she could put it in an offset account in his name.

 

[Kristine..]

Alan

I don't know how to do the clicky link thing, but if you search 'mother' you will find a recent post 'Purchase Mothers Unit' which has some relevant information regarding deeming values for people on the pension

Cheers

Kristine

PS

Blood may be thicker than water, but we are talking about money, honey, and if there is to be any money (especially $50,000) changing hands I would certainly advise the mother to take a registered mortgage over the property to secure her interests.

 

[Alan H]

I know what you mean Kristine.

I recently observed a situation where money was lent to friends whose relationship was badly affected by the experience and for a number of reasons I'm not sure if I'd feel comfortable with personally going down this path either.

However, I was talking this situation over with my wife and it's an awkward one. Do we indeed assume the worst of everyone or maybe, just maybe there are still some good kids out there in the world that can be trusted who really just want to help their parents out? I really do believe that this is the case here but I take your point.

 

[Kristine..]

Alan

There are two main points here

The security of the money for the mother

The security of the money for the son.

The mother may not get the money back when she wants it

The mother may want the money back at a time inconvenient to the son.

When No 1 Son settled on his first property we had three days notice to settle (he had bought off the plan).

Time was critically short, so Mike & I and No. 1 took out a supplementary loan against the family home. Ian then used this money to settle. We then took a registered first mortgage over the new property on the same terms and conditions as the supplementary loan - 30 years. A couple of years later, he had enough equity to refinance and took a bank loan in his own name, repaying and discharging the mortage to us.

When daughter bought her first property, the bank would lend her most of the purchase price but she was $30,000 short. Different loans officer, who declined to do the three party supplementary loan again, and this time the supplementary loan would have to sit as second mortgage, which the bank was not comfortable with because of serviceability issues.

So Mike and I took out the supplementary loan and passed the funds to daughter, who signed mortgage documents back to us but the mortgage papers are stored with the conveyancer. If need be, we can lodge the mortgage but at the moment it is unregistered.

If she decides to run off and join an ashram and ceases to pay the mortgages, we can lodge the mortgage giving us the ability to deal with the security property.

The other side of the coin is if the person putting up the funds (in this instance, us) decided to claim the funds back when the borrower could not refinance or otherwise repay the loan.

It is always best to treat any financial dealing 'at arm's length'. Either give the funds to the other party, or formally register and secure interests from the beginning.

The damage to relationships caused by even a small amount can be horrendous, let alone a significant amount such as $50,000.

Regards

Kristine

 

[Sunfish]

Elderly Aunts and money

I recently found myself giving F advice to a Maiden Aunt who has managed her affairs remarkably well on her own. But there was $60k in a SAVINGS A/C. This would have been deemed to have been earning better interest than she was actually recieving and thus costing her some pension. She wants it available "in case".

After selling her unit and buying into the RSL villas she must still have over $30k. My advice would have been (I may yet advise this when she settles in) to buy dividend paying shares and lodge them with Leverage Equities. Up to 60% of value could then be withdrawn o/night. Her existing portfolio folded in would give her well over $100k "at call".

Offered because this may not be the way R/E investors think.

Thommo

 

[sbe]

As the others have said, tread carefully.

There's four kids in my family. I would trust two of them with this arrangement - My sister and myself.

It depends a lot on the person and their responsibility level.

It could help, or be a nightmare.

Good luck.

Simon.