# Mortgage from bank of Mom and Dad



## jumbalaya (Jan 17, 2013)

I read a few older threads about this, but I didn't really understand :S

My parents are offering to give me money to buy a condo in cash, in exchange for money paid bi-weekly or monthly. We have a good relationship

Are there tax implications? Any things to watch out for? What happens if I lose my job? What interest rate should they charge?

Thanks y'all


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## OptsyEagle (Nov 29, 2009)

Parents should really be asking this question. No tax on the loan. They would be required to pay tax on any interest income they earn. Also, they need to worry seriously about your creditors and ex spouses, etc. They will most likely come ahead of their repayment unless proper paperwork is completed.


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## Just a Guy (Mar 27, 2012)

Do you have siblings? Big issues can arise if you do.


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## jumbalaya (Jan 17, 2013)

yes, i have a sibling. why does that matter? jealousy maybe, but no legal action can be taken?

so any interest I pay them will be taxed... ouch.

Optsy, what does your last sentence mean?


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## cashinstinct (Apr 4, 2009)

They mean that if you owe money to anybody for any reason, they will get paid before your parents do


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## KaeJS (Sep 28, 2010)

jumbalaya said:


> yes, i have a sibling. why does that matter? jealousy maybe, but no legal action can be taken?
> 
> so any interest I pay them will be taxed... ouch.
> 
> Optsy, what does your last sentence mean?


It would be my suggestion that the other sibling be left out completely and does not know about this if they are not getting the same treatment from the parents. Jealousy can be dangerous.

Interest that you pay to your parents will only be taxed if you choose it to be. Your parents could just gift you the money and you could pay them under the table. The government doesn't need to know. But of course, that is up to you.

The money your parents give you is already After-Tax dollars. If you want to have *your* After-Tax dollars taxed AGAIN, then that is fully up to you, but I think you'd be nuts to do that.


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## jumbalaya (Jan 17, 2013)

we're not big on keeping secrets, but ok, that will be a point to be discussed for sure, thanks.

yeah, taxed again... i'd prefer not to be, but if that's what i have to do for it to be legal, then I will.

i dont' have any other creditors


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## MoreMiles (Apr 20, 2011)

If you parents pass away, that loan repayment is considered an inheritance, then half of it will go back to you. If your sibling is not good in math, he may think he is subsidizing your home and it's not fair and never speak to you again, then all of a sudden you lose all your immediate blood relatives. 

The other concern... borrowing a huge sum of money from parents is the same as buying life insurance for your children. It's ok but may lead or suspicion of conflict of interest by police if there is anything fishy. In the news there was an allegation one wealthy parent's death was initially considered suicide but now the police is doubting that and focusing on his son. You know which news I am talking about. So why get a conflict of interest when you have other borrowing option?


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## jumbalaya (Jan 17, 2013)

the inheritance will be explained clearly to my sibling or any relatives, so that should be fine.

i see the conflict of interest, but i think dealing with the police temporarily vs paying more interest over 25 years is worth it.


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## MoreMiles (Apr 20, 2011)

Also, if your wife or future wife has bad relationship with them such as elder abuse, your parents may call their loan back to protect themselves. You and your spouse will be forced to sell your primary residence. What if there is a divorce and one refuses to sell, your parents will be involved in a very messy financial battle! Have you thought about it? Don't say you are invincible because statistically 50% of marriages end in divorce. It's better to leave your elderly parents out of a potential mess.


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## jumbalaya (Jan 17, 2013)

good points, thanks.

if my parents call back the loan, can I take out a mortgage to cover the remaining portion?


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## carverman (Nov 8, 2010)

jumbalaya said:


> I read a few older threads about this, but I didn't really understand :S
> 
> My parents are offering to give me money to buy a condo in cash, in exchange for money paid bi-weekly or monthly. We have a good relationship
> 
> ...


Well *here* is my sad story about a similar situation..using the "Bank of Mom" for mortgage money. 

*Please do not take the mortgage money as a gift from the "bank of mom", especially if you are married.* This happened to me.

If things fall apart for whatever reason, there could be some *bitterness within the family as someone could be out considerable money.*


My Mom gave us $50K to help pay down our mortgage on the marital home. There was no paperwork, just the honor system that we would start paying her back when the final mortgage payment was done.
I stupidly took some more money from the Nortel savings plan..to pay off the remaining mortgage balance, and thought we were "Home Free" as they say.

As soon as I did that, and mentioned to my ex that we should start paying my Mom back (btw her parents never gave us a dime!) ..she exclaimed "I'm not going to pay her anything! It was a GIFT!..and so right after a serious arguement, she moved out and filed for divorce..which she had been probably planning all along..that was the excuse she needed.

During the 4 year long legal see-saw over spousal support and other monetary things, my MOM, who was generous to a fault asked me.".What about my $50K that I gave you and <my spouse at the time?"

I told her..that at this point with the legal battle going on between us, she needed now to make some kind of "Promissory note" at least for me that I would pay her back as my ex would not sign any papers at that point. 

Even though Mom LENT BOTH OF US the $50K , the courts in the end, did NOT allow her the $50K from the sale of the marital home..because there was no mortgage set up for that $50k, so it was considered a gift ..and too bad for
Mom!

The ex in court *through her lawyer) argued that money was meant as a GIFT ALL ALONG ,and there was no proof that it was ever registered as a lien or mortgage.

*So the sad story my friend is that my MOM LOST ALL HER MONEY*..the courts went in favour of my ex that with what I owed her in equalization..got the bulk of the $142K that the marital home sold for..I got very little..we are BITTER ENEMIES over that to this day!

MY advice is: i*f Mom is going to help you, take her check to a lawyer and register it as a second mortage* if there will be a first mortage or at least an LIEN against the property, so when it gets sold, your Mom gets her money back at least the principle that is remaining.


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## MoreMiles (Apr 20, 2011)

Wow. Caverman, thank you for confirming my posted concern with a real life example. I am so sorry to hear that but it's better to find out about your ex true personality than until later when you have a bigger networth and potential inheritance. I hope your wound has healed by now. Thank you for sharing.


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## marina628 (Dec 14, 2010)

I can add to a real life situation too ,bank of mom and dad of a friend loaned funds and then mom dies and 6 months later the dad remarries. After the Dad dies wife #2 wants the $120,000 paid to her immediately as the Dad put it in his will that he was owed money from one of his kids. Assume the loan can get called in anytime and you could be forced to refinance or have to sell as my friend had to do because his credit was not so good. My parents have offered us money in the past but I turned them down even though they were getting poor return from their own bank. Can you get this mortgage from the bank?


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## carverman (Nov 8, 2010)

MoreMiles said:


> Wow. Caverman, thank you for confirming my posted concern with a real life example. I am so sorry to hear that but it's better to find out about your ex true personality than until later when you have a bigger networth and potential inheritance. I hope your wound has healed by now. Thank you for sharing.


The sad reality today, and all of my 3 lawyers that took on my struggle from Sept 1994 to April 8, 9, 10 in 1998..all agreed that in divorce court, at least in Ontario divorce courts, with a traditional marriage (no prenuptial) the *husband is treated like a second class citizen with deep pockets*.

I had to pay her prejudgement interest of over $9,000 on the equalization payment that she was entitled to..and post judgement interest of over $900 until her lawyer was satisfied that all the conditions of the judgement against me were met in the financials.

I couldn't believe that this could happen!...but it did..and I still had to pay her $1000 a month support and $1100 for my daughter while in school for the next 3 years, while I struggled financially.


Because of the judgement, I'm still paying my ex (even though she remarried a long time ago) $300 a month INDEFINITE..THIS MEANS FOR THE REST of my life or until I lose my Nortel pension,(now in wind up phase) and have to shell out a few more thousand in legal fees to get this "albatross around my neck" lifted completely, OR reduced again.

So far the legal struggles cost me $30,000 up to time of divorce, half my pension, half my RRSPs, most of the marital home proceeds and almost $10,000 in accumulated interest on the equalization payment while the lawyers dragged their butts..and it happened again at time of my retirement ..another year it dragged out while my ex was looking for more "gold" from me..she was not satisfied with my cash offer in lieu of indefinite support payments...second class citizen in the eyes of the divorce courts, I am.

In the end, I lost over #100,000 of my wages on something that should have been settled cheaper and faster.

I will never forget how I got shafted by her, her lawyer , and the *female judge they chose* that did not like men! (feminist judge, I was told by my lawyer..when he saw her in court and whispered to me "Oh oh! I think
we are going to be in trouble here!). 

That 10 part judgement, after 22.4 years of marriage made me so depressed, I was contemplating something I would never have under normal circumstances!


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## jumbalaya (Jan 17, 2013)

carverman, i am not married at the moment, but i see potential issues there too. sorry to hear about your situation 



marina628 said:


> I can add to a real life situation too ,bank of mom and dad of a friend loaned funds and then mom dies and 6 months later the dad remarries. After the Dad dies wife #2 wants the $120,000 paid to her immediately as the Dad put it in his will that he was owed money from one of his kids. Assume the loan can get called in anytime and you could be forced to refinance or have to sell as my friend had to do because his credit was not so good. My parents have offered us money in the past but I turned them down even though they were getting poor return from their own bank. Can you get this mortgage from the bank?


my credit is good at the moment, and i could get the mortgage from the bank, just at a higher interest than my parents would charge. if the loan was recalled at a time when i lost my currently stable job, then i could be in trouble. 

thanks to everyone so far... definitely would not have thought of these potential scenarios by myself.


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## brad (May 22, 2009)

Smaller loans are not a big issue. When I was in my early 20s with no credit history, I got a $5,000 car loan from my father; he set up an amortization schedule using the current prevailing interest rate, and I paid him back every month. But that only took about 5 years. A mortgage is much larger, and as you can see from the scenarios here, more risky. 

You'd probably want to evaluate the cost savings of the lower interest rate against the potential risks and added complications.


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## rsyl (Aug 15, 2014)

I have a question no one seems to have brought up.

Why would you even want to take money from your parents?

If you can't afford to purchase the house why are you purchasing it?

If your parents want to help you out, why don't you get a traditional mortgage for it, your parents invest their money, and if you need support making payments then they can send you small "gifts" which are removed from your inheritance, or paid back?

Surely your parents can make more in the markets then they could charging you 3%, plus you would avoid all the risk.


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## Plugging Along (Jan 3, 2011)

My family has already looked into this situation about giving or lending money to children for a home. It was advised that never gift the money to the kids because if there is a divorce the parents will lose the money, as Carve has stated.

The gift is too be set up as a loan that is callable by the parents, However, in the event of a divorce for the parents, then to rewrite terms of the loan. To make it more stable, involve lawyers to draft up the 'loan'. It will be well worth the initial cost than if these other things happen. It's a pretty common practice.


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## KaeJS (Sep 28, 2010)

Carve,

Any reason why you do not accept pm's?

This is the second time I have tried to send you a pm.


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## gt_23 (Jan 18, 2014)

Real Life Story: My parents gave me a loan (twice actually) and it was paid back in full with interest on the agreed schedule.

IMO this is win-win. I would've gone hungry before screwing over my parents, I got the loan, it didn't show up on my credit report, they helped me out (social benefit for them), got a bit of interest, and got the security of lending to a close relative.

Bad borrowers will always be bad borrowers regardless of whether the lender is related or not...


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## MoreMiles (Apr 20, 2011)

gt_23 said:


> Real Life Story: My parents gave me a loan (twice actually) and it was paid back in full with interest on the agreed schedule.
> 
> IMO this is win-win. I would've gone hungry before screwing over my parents, I got the loan, it didn't show up on my credit report, they helped me out (social benefit for them), got a bit of interest, and got the security of lending to a close relative.
> 
> Bad borrowers will always be bad borrowers regardless of whether the lender is related or not...


Good for you. We are not here to brag about silver spoon. The OP was asking what to watch out for and what may go wrong. 

You want to brag, some parents from UCC and Havergale buy their teenagers Bentley for their sweet 16 birthday and Forrest Hill mansion as wedding gift. Their stock options list the kids as shareholders that they never have to pay back. So what is your point to brag?


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## gt_23 (Jan 18, 2014)

MoreMiles said:


> Good for you. We are not here to brag about silver spoon. The OP was asking what to watch out for and what may go wrong.
> 
> You want to brag, some parents from UCC and Havergale buy their teenagers Bentley for their sweet 16 birthday and Forrest Hill mansion as wedding gift. Their stock options list the kids as shareholders that they never have to pay back. So what is your point to brag?


Glad to see you are capable of careful and critical reading, and understanding context.

My comment was not bragging, but rather a counter-argument (with some of the benefits of family-lending) to the many "Real Life Stories" which preceded it on this thread and had the tone of: "don't lend money to family members because I have an anecdote or know of a guy, who knows a guy, who got burned lending to family" or "that's what banks are for, family members shouldn't lend to each other because of X, Y, and Z."

Finally, equating a small loan (one was for $12k, another for $30k) to a gift of some sort when it was clearly stated that each was paid back with interest, at the agreed-upon terms, is truly a stretch of the imagination. Your fantasy is on clear display when you stretch it even further to compare a gift of a Bentley or a Forrest Hill mansion ($10mm) and implications of silver-spoon lifestyle. 

I think you would find that if you were more capable of regulating your emotions and being open-minded, you would be more successful in this world, unless of course you have the rare primary occupation that rewards you to be this way.


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## Taraz (Nov 24, 2013)

If it's going to be a loan, make sure paperwork is drawn up, and a lien is placed on the property accordingly. That should help to deal with any potential spouse issues, since it couldn't be misconstrued as a gift. Alternatively, they could just gift you the money with no expectation of repayment. Don't depend on the honour system.


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## OhGreatGuru (May 24, 2009)

I agree with Taraz. It should be in writing. (I'm not sure about the merits of a lien - though that does protect the parents.) If this is done, I see nothing wrong in principle with the type of loan proposed by OP.

The nightmare related by Carverman is one I can foresee becoming a common problem, where parents are "gifting" downpayments to children with a verbal understanding it will be paid back. Sometimes it's just naivete, assuming things will never go wrong. But sometimes they don't want it in writing because they don't want mortgage institutions knowing it was really a loan, not a gift, and that the mortgagee really doesn't own the qualifying downpayment.


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