Mortgage vs loan from father-in-law

[joannewatson]

My father in law has kindly offered to loan us the money to pay off our mortgage and we would pay him back on a monthly basis. We would pay him the interest which he would have earned on his savings (which is obviously a lot less than the interest on a mortgage) and a set amount to pay off the loan, so he would not be out of pocket and we would save on the interest. We would not do this through a solicitor and my father-in-law would hold the deeds which would be in our name.

This seems to be a great offer and we would pay off about �6k in 2 years and still be able to have a life! (we have a 1 year old so money is tight)

If after the two years my father-in-law decides he wants the remainder of the money back (for example if he wants to buy another property) would we have to get a loan to pay him back rather than another mortgage?

Please can someone advise and let me know if they can see any problems with this set up?

Thanks in advance.

[SRH]

If you have any doubts whatsoever about him wanting the money back then don't do it. Not worth risking family relationships over.

If you do decide to do then it's really worth getting some legal documents drawn up and signed by everyone with witnesses to make sure it all goes as planned.

My dad lent me the money for my car (�5,000) and I paid him back monthly without interest (I know, I know - I'm very lucky!). We drew up a document together and got two neighbours to witness and sign it. I don't know how legally binding this would have been but it gave us peace of mind (not that I'd ever rip my dad off!)

[joannewatson]

Thanks SRH. Giving him the money back is not an issue. If after 2 years he wanted it back that would be fine, but I'm not sure if I would have to get a loan or another mortgage.

[Ethel]

Firstly, your father holding the deeds is irrelevant - it is the name on the Registered Title at the Land Registry that counts and it matters not a jot who has possession of the paper deeds or if they are lost or destroyed. So your father has no automatic security for his loan whatsoever if you reneged on the debt.

If your father wants the money back at any time, you can get either a mortgage or a personal loan - whichever is the best deal for you.


But check your figures - you can get a remortgage at a rate of around 5.5% whilst your father can easily earn 6.5% in an instant access savings account - a lot more if he invests.

[joannewatson]

So Ethel, does that mean I may be better off re-mortgaging rather than getting a loan from my father-in-law?

[Ethel]

It is impossible to give a straight answer - I cannot possibly know all the facts.

You need to consider:
Can you get a remortgage? (can be difficult in the current climate)
If so, how much will it cost - all associated costs as well as interest rates?

How much interest can your father in law get on his savings?
Is he in good health? What will happen should he need the money for care costs and so on - (I have no idea how old he is)
Is he likely to get divorced?
What will happen should your father in law die before you have repaid him?
Are you likely to get divorced? What would happen if you divorced, or you or your wife died?
What if you are unable to work for any reason?

There is a lot to consider.