Bank of mum and dad

Only going to end in tears....

- NAB and Westpac say more parents guaranteeing kids' loans

I cant understand how people aren't needing to cut back on spending on holidays/tv's/new cars etc based on how expensive Sydney properties are getting.

Unless while i wasn't looking people got major pay rises the amount of money being spent on debt repayments (/or investors rent) has to affect the economy in the long run.

Don't get me wrong, happy to profit from it in the mean time......but worried long term what this means for Australia........

 

We used the Bank of Mum and Dad (BMD), 35 years ago (early '80s).

We signed a Contract on a house (PPOR) in Brisbane for $54,000

We had a 60% deposit ($32,000).

The bank (Westpac I think it was) would only lend us 20% ($11,000) and as a Personal Loan.

We had to borrow the other 20% ($11,000) from BMD (my parents).

All ended sweet. We got our house, paid back both loans and sold that house many years later.

 

I personally borrow money from my parents.

Their loan is protected by a registered first mortgage on my passive rental properties. Their lawyer drew the contract up and I paid their lawyers fees (plus I paid their lawyers fees to discuss the implications of doing the loan).

They are paid an interest rate higher than what the bank pays them on cash and they have told my siblings about the loan.

They will only lend if they are refinancing a loan from a Big 4 bank so they have the same security and protection for non-payment.

It works ok.

 

Everyone needs alittle help to get started and now it's alot tougher to enter the market, so why not? Personally for me I didn't ask my parents for help when I purchased my PPOR but if I was to start now, I'll either be renting and investing or asking my parents for help.

 

My mum and dad have helped me a lot as well as my siblings. Mr NAB and Ms CBA have really been there for me as parents. Even their other kids, little ING and cheeky Macquarie have chipped in here and there. My family have been very financially supportive.

 

Never heard of this bank? What are the five year fixed rates like?

 

Mates rates (I wish!)

 

Mum and Dad weren't great with money.
My wife and I are somewhat better.
Wouldn't go near a loan situation with them personally - in fact that rings true for most (not all) of my family members.
However getting mum and Dad as guarantors is different to taking out a loan directly from them. If needed - I would certainly have considered it at the time.

 

I've done similar to @Ross Forrester

Borrowed from the BMD - worked well, covered all the soft costs for my development ~$70k which was later refinanced with the construction loan.

Parents were paid interest at higher than they were receiving from the bank, they declared the interest earned - just like I would claim the interest expense.


I have also used parents as guarantors on investment properties, which allowed me to utilise my personal savings for residential (PPOR) property.


In both situations I've had the funds available to clear all the debt, but it's worked very well for me (and parents getting higher return)

 

In the unlikely event that the parents were bank robbers, this situation could offer an interesting irony...

 

A sad situation it is. Worst part is people do believe parent's help is required to get started

 

Maybe the thread could be rewritten "increasing your return on investment through your kids".

The assumption is that it is only the kids who win. Mum and Dad should win as well.

 

I started with zero but think it's fine parents help out a little provided this does not fundamentally affect how kids learn the financials of investing and the real value of money. Balance needs to be right. If you provide a deposit with a plan for kids to repay I think all is good.

 

No. It hurts their decision making and financial judgement in the long run.

I reckon one of the partied can always get a better deal elsewhere