Author Topic: Should I transfer my Mortgage to the Bank of Dad?  (Read 4442 times)

Barry

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Should I transfer my Mortgage to the Bank of Dad?
« on: October 17, 2012, 12:09:35 PM »
An interesting opportunity came up for me recently.  I mentioned to my Dad that my current mortgage term is up soon, and he suggested that rather than renew with a bank, I should write up a mortgage with him, since he has enough available capital, is not interested in any stock or bond investments.  He figures "why should my kid pay the bank money - better to keep it in the family".

We tentatively agreed that he would give me an unsecured personal loan, at  0.1% better than current best-available rates (likely Bank of Canada Prime), and we'd do a variable rate (calculated / adjusted yearly for simplicity).   Rates in Canada are around 3% right now.

Cash flow is not an issue for him or me right now, and the mortgage is my only debt.

So, should I go for it?  Any suggestions, warnings, advice, etc?  All comments are welcome, especially frank ones - I have a thick skin, so no worries about hurting my feelings...

bo_knows

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Re: Should I transfer my Mortgage to the Bank of Dad?
« Reply #1 on: October 17, 2012, 12:13:02 PM »
FWIW, We had a portion of our mortgage under "Bank of my in-laws", which represented enough money to get us to a 20% downpayment.  My inlaws are retired and figured the same thing ("Why not make some interest while helping them out and not giving the bank business").  It worked out well for us.


twinge

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Re: Should I transfer my Mortgage to the Bank of Dad?
« Reply #2 on: October 17, 2012, 12:40:07 PM »
Quote
We tentatively agreed that he would give me an unsecured personal loan, at  0.1% better than current best-available rates (likely Bank of Canada Prime), and we'd do a variable rate (calculated / adjusted yearly for simplicity).   Rates in Canada are around 3% right now.

Well...this is a US perspective, but a lot of people are investing in a mortgages to fix in these long-term low rates rather than have a variable rate.  If the rates went up to, say, even just 7% in the future you would be worse off with your 6.9% rate than if you held the 3% rate for 30 years.  Conversely if you held it fixed, your dad may not like having his investment stuck in a 3% loan when he could be earning more on it elsewhere.  Maybe if your remaining loan term isn't too long this would make sense.

Barry

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Re: Should I transfer my Mortgage to the Bank of Dad?
« Reply #3 on: October 17, 2012, 12:47:02 PM »
Quote
We tentatively agreed that he would give me an unsecured personal loan, at  0.1% better than current best-available rates (likely Bank of Canada Prime), and we'd do a variable rate (calculated / adjusted yearly for simplicity).   Rates in Canada are around 3% right now.

Well...this is a US perspective, but a lot of people are investing in a mortgages to fix in these long-term low rates rather than have a variable rate.  If the rates went up to, say, even just 7% in the future you would be worse off with your 6.9% rate than if you held the 3% rate for 30 years.  Conversely if you held it fixed, your dad may not like having his investment stuck in a 3% loan when he could be earning more on it elsewhere.  Maybe if your remaining loan term isn't too long this would make sense.

That's a fair point.  My expected remaining mortgage is 5-8 years, and if I do go with a bank I'll almost definitely go with a variable rate (I'm not worried about interest rates going up, or about having higher-than-expected payments).

Catbert

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Re: Should I transfer my Mortgage to the Bank of Dad?
« Reply #4 on: October 17, 2012, 02:07:41 PM »
Another US perspective...if I were your Dad I'd prefer that it was a mortgage against your house rather than a personal loan.  That way if something happens (e.g., bankruptcy, divorce, death, family falling out) my money would be more protected.  If I was your sibling it would also make me feel more secure that you weren't somehow taking advantage of Dad.

That said, I think that more families should use well thought out intra-family loans.  It can be an advantage for all in the right situations.

Self-employed-swami

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Re: Should I transfer my Mortgage to the Bank of Dad?
« Reply #5 on: October 17, 2012, 03:10:32 PM »
I know a few people who have mortgages held by family members.  You can get it all drafted up with a lawyer, so that he'll show up as a lien (Edit: I just saw that he offered to do it unsecured.  I wouldn't want that for either party) on your house.  There are also a few websites that will handle the payment arrangements.

It can be a good thing for both of you.  Both of the people I know, who's mortgages are held by a family member, are very happy.  As long as you continue to make payments, and he doesn't try to jack the rate up (probably unlikely since you seem responsible enough to be able to renew your mortgage, and he's probably not interested in ripping you off) it should work out well.

However, if you've got a meddling parent, it might not be such a good idea.

« Last Edit: October 17, 2012, 03:12:29 PM by Self-employed-swami »

igthebold

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Re: Should I transfer my Mortgage to the Bank of Dad?
« Reply #6 on: October 17, 2012, 03:34:31 PM »
I'm thinking of something like http://prosper.com but with longer terms that would administer and enforce payments on both sides, but let the family member fund the loan. Not sure there is such a thing, though. Prosper provided only 3-year unsecured loans last I checked.

vwDavid

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Re: Should I transfer my Mortgage to the Bank of Dad?
« Reply #7 on: October 17, 2012, 04:51:32 PM »
yes, we are doing that. Yield stays in the family.

Mattamatics

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Re: Should I transfer my Mortgage to the Bank of Dad?
« Reply #8 on: October 17, 2012, 05:24:32 PM »
Just one other thing to consider, a mortgage can be held within an RRSP (Though it results in (significantly) more fees, when setting up the mortgage and it would require creating a more formal loan, repayment schedule etc.

Here's a couple links that touch upon it.
http://business.financialpost.com/2012/02/11/rrsps-can-house-a-mortgage/
http://www.milliondollarjourney.com/holding-a-mortgage-within-an-rrsp.htm

Seeing how your repayment horizon is relatively short (under 10 years) the cost/benefit isnít likely there. Though if your father (or his spouse) has excess RRSP room (and are in a relatively high income bracket) and are still several years out from being forced to convert to a RRIF you may as well look into it. (or if the assets he was going to use to fund the mortgage are currently within his RRSP youíll likely want to do this)