Back in 2006, I loaned my daughter $50,000 towards her down payment on her first condo. I also made her sign a promissory note (which was also notarized….pay attention parents!) The loan read that for the first three years of her home ownership she didn’t have to pay me a dime. On the 4th year, however, when I turned 60, she was either to refinance or sell and pay me back the whole amount in full. With the going rate of interest (4% at that time). This is New York City and YES, at that time, properties would increase in value with that much equity. In fact, today, my daughters condo has doubled in value from when she originally purchased it.
When it came time to re-finance, however (there’s always the ‘however’ isn’t there? Or that ‘but’) the housing collapse was in full swing and she could only pull out $10,000 in equity (I used that money to finish off my second floor with two bedrooms and one full bathroom). My daughter thought that that was that. Since she could only pay off $10,000 that the rest of the $40,000 she owed me would be forgotten. Nope. Not so fast! This is where the promissory note comes in. I reminded her of her signature and her still responsibility. After much haggling and threatening (Yes, I told my daughter I would take her to court and file a lien against her condo, thus ruining her credit) she and I came to a new financial pay back arrangement. If you think I’m a mean mother, fine. This mean mother was NOT losing $40,000 of her retirement money. Sorry. I hear too many horror stories of elderly people going without food or meds. I wasn’t going to be one of them.
My daughter and I agreed that she would pay me back the $40,000 at $300 a month. Yes! It was now going to take her eleven (11) years to pay me back at a pithy three hundred dollars per month! I would be 71 years old before the debt was paid.
So, I set up a new budget for hubs and I and over the years, and we started depending on that $300 per month. I paid a steady stream of dedicated bills with it every month. I calculated that by the time I was 71, hubs would be on his own Social Security and we’d make up the $300 deficit that way, when the time came and my daughter’s loan was finally paid off.
I got a call from my daughter last week informing me that she re-financed her condo again and thanks to the new low rates AND the condo value doubling, she was able to pull out enough equity to finally pay my remaining balance in full. I’m 69 years old. She’s nine years too late BUT at the height of this pandemic, an influx of money now is very well appreciated. AND needed.
The balance due me was $6,500. My daughter sent me a certified check along with a release form. My daughter learned a valuable lesson.
PAY BACK WHAT YOU BORROW.
And if you do loan money to someone, have them sign a promissory note and charge a fair interest. The interest makes the loan all the more legal!