Mortgage Loan/Investment

[windchimer29]

I have a sizable mortgage with a 4.65% APR loan. I was not planning on paying it off early, as I generally think my other investments can beat that 4.65%. They certainly have been thus far.

However, I was recently helping my mother look for a good place to park some of her cash (short term low risk investment). Vanguard's Money Market Fund (~2.5%) was looking pretty good. Then another idea came to me. What if I took the cash from my mom, paid down my mortgage that amount, and gave her 4% return. She gets a nice safe investment with 4% return, and I shave off .65% from my loan APR. Win/Win.

In theory, I think this works. But has anyone ever done this? Pitfalls? Advice?

Thanks!

[Mr. Metal Mustache]

You could easily refinance into a 30 year mortgage @ 3.75 with no points at this time. Let your mother put her funds in the VG MM and this way you both get the best deal....And your avoiding the mine field of family loans. :)

[reeshau]

The idea that this is "a nice safe investment" is pretty far off.  If you are talking about actually having your mom write a mortgage, where she has a lien on your house, and you are obliged to pay a mortgage servicing company who reports on your credit and maintains an escrow account, that's one thing.  But it's still a real estate portfolio of one, so she has to also consider the state of the local market.  And then there is the cost of having a lawyer draw up the mortgage.

What @Mr. Metal Mustache said:  lower your rate to a competitive one, let her do her thing, and you make sure this never comes between you in your relationship.  That's the safe bet.

(Having said this, my in-laws did just this; but more as an estate planning move than anything else--neither they nor my FIL's mother needed the money.  It was a matter that they were buying their forever house, wanted to provide Grandma with a monthly income from her portfolio, and the mortgage would be wiped out with the estate when she passed.  But mortgages were more like 6% then, although so were other fixed income assets)

[JohnnyZ]

I have a sizable mortgage with a 4.65% APR loan. I was not planning on paying it off early, as I generally think my other investments can beat that 4.65%. They certainly have been thus far.

However, I was recently helping my mother look for a good place to park some of her cash (short term low risk investment). Vanguard's Money Market Fund (~2.5%) was looking pretty good. Then another idea came to me. What if I took the cash from my mom, paid down my mortgage that amount, and gave her 4% return. She gets a nice safe investment with 4% return, and I shave off .65% from my loan APR. Win/Win.

In theory, I think this works. But has anyone ever done this? Pitfalls? Advice?

Thanks!

I've actually just done exactly that. I paid off my mortgage with cash from my mom, calculated how much that saves me vs. increasing my mortgage payments, and she'll get the difference and a bit more. She's really wary of things like stocks and was only getting sub-1% interests in saving accounts, that way she gets a bit more.
Things to make sure that works:
- be serious about paying back. Everything I can save every month, I use to reimburse.
- it's a rather short-term loan (2 years). She is sure to have all the money back when it's due, because at that time I will get a bonus from work which will allow me to pay back whatever I still owe, even if for some reason I've missed a payment.
- if she ever needs cash back before the term I can always take from my savings to reimburse her (though it would be best if that happens at a market high :)

 The other posters are right, it never hurts to see if you can get a better rate, but personally I feel better knowing I no longer owe the bank.