Author Topic: Should I pay off family loan or invest?  (Read 614 times)

LaurenR

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Should I pay off family loan or invest?
« on: August 04, 2017, 03:08:11 PM »
Hi!

I just sold a property and now have the means to completely pay off a loan from my father-in-law ($80k balance, 3.0% interest, 10 yr term).  My father-in-law doesn't need the money back, although ideally he'd like to have it back within 5 years instead of 10.

I think I should go ahead and crush the debt for a couple of reasons: 1) I don't like to owe family members anything, 2) the 5-yr return in the market is questionable to me right now, and 3) it's likely I may quit my job to stay home with my kids for a while which will reduce our income and ability to meet debt obligations.  Planning some great side hustles but who knows how well that will work out.

Yet 3% interest is sweet.  I do have a mortgage at 3.75% I could pay towards instead, but the $80k isn't going to change my monthly payment obligations unless I refinance, which eats up that 0.75% advantage.

Am I making the right move??  What am I not thinking about?

lizzzi

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Re: Should I pay off family loan or invest?
« Reply #1 on: August 04, 2017, 03:26:11 PM »
Yes, in this case I agree with you. Pay back your father-in-law...I just think it's the right thing to do.

LaurenR

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Re: Should I pay off family loan or invest?
« Reply #2 on: August 04, 2017, 03:39:28 PM »
Yes, in this case I agree with you. Pay back your father-in-law...I just think it's the right thing to do.

Thanks!  FYI my father-in-law is VERY FI and enjoys doing these types of loans to help all his kids as needed.  :)  But I still don't love to have that in the family dynamic unless necessary.

waltworks

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Re: Should I pay off family loan or invest?
« Reply #3 on: August 04, 2017, 08:18:00 PM »
Pay back FIL, avoid potential family problems going forward.

-W

Fuzz

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Re: Should I pay off family loan or invest?
« Reply #4 on: August 04, 2017, 08:21:09 PM »
Paying off the FIL is good for a couple reasons: (1) shows to FIL that you honor your word; (2) you prove to yourself that you honor your word by sacrificing to prepay the loan and; (3) depending on how your family is, other sibs/parents will know and trust you more.

Also, if god forbid something happened and you really couldn't make a payment, then you would have years of credibility built up and have earned the benefit of the doubt. If you make minimum payments and spend the money on other things, you don't have that credibility.

I see the interest rate here is unimportant, and the psychology and family dynamics really important. Trying to make a couple points on investing rather than paying down family debt may send the wrong message. Happy wife, happy life. Also, you sound like you care more about this than your FIL. That's good.

GizmoTX

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Re: Should I pay off family loan or invest?
« Reply #5 on: August 05, 2017, 01:00:38 PM »
Pay off your FIL loan. It's the right thing to do, & he won't be impressed if you pay off your mortgage ahead of him. Investments are not a sure thing, so take care of the debt first. Even if he doesn't say anything or doesn't appear to 'need' it, you can't assume this. Honor is important.

Lmoot

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Re: Should I pay off family loan or invest?
« Reply #6 on: August 06, 2017, 03:34:44 AM »
Also, if something unfortunately happens to your father-in-law, things could get messy in the ordering of the estate, siblings could come after you and your spouse, or they might push ffor the money upfront.

LaurenR

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Re: Should I pay off family loan or invest?
« Reply #7 on: August 10, 2017, 08:38:01 AM »
Thanks everyone!  Nice to get assurance I got this right.  :)