Dear reader,
During our conversation, you mentioned that you were unaware of this loan until you had already committed to contributing to your partner’s mortgage. I can understand how this must have been an unwelcome surprise for you.
Not only has the loan increased your financial obligations, but it has also complicated your family dynamics.
It is a generous act to assist your child in purchasing their first home, and it is true that many parents in a similar position do not expect repayment.
The fact that your partner was not aware he was entering into a loan agreement suggests that his stepfather did not clearly communicate his intentions from the beginning.
Repaying the loan itself is one matter, but the added interest seems to be the real issue, as it could result in the stepfather making a significant profit – money that could potentially benefit your partner’s step-siblings in the event of a will distribution.
However, some readers may argue that you should repay the loan. After all, your partner’s stepfather helped provide a home for your growing family.
Hopefully, the growth in the value of your property will eventually outweigh the amount contributed by the stepfather, leading to an increase in your household wealth in the long run. In this case, repaying the loan with a little extra to be distributed equally amongst the stepfather’s children and your partner may be considered fair.
The interest rate being charged is lower than what you would receive from a bank for a personal loan, and it is below the current inflation rate, making it a relatively charitable arrangement.
The lack of a written agreement regarding this gift or loan has created confusion, leaving everyone uncertain about their positions.
To gain a better understanding of the situation, I sought advice from our resident legal columnist, Gary Rycroft, from Joseph A Jones & Co Solicitors.
“Firstly, I would like to know the terms under which she has been added to the mortgage,” he stated. “Is she acquiring equity by contributing to the mortgage, or has her partner fully added her, resulting in joint equity with him and his stepfather?”
If it is the former scenario, Mr. Rycroft suggests it is unfair for you to be responsible for a personal loan that primarily concerns your partner. It should remain a matter between him and his stepfather.
“If she has been added as a joint owner, she would have obtained a significant portion of the property’s equity,” he added. “In that case, paying a slightly higher interest rate should not be a cause for complaint.”
In this situation, it would be beneficial for everyone involved to seek legal advice and establish a Declaration of Trust document.
“This document can clearly outline the distribution of proceeds if the couple were to move or separate,” Mr. Rycroft explained. “It would specify the contributions made by each person towards the property, who pays the mortgage, who benefits from the property payments, and who is responsible for repaying the loan.”
While this may not release you from the obligation of repaying the loan entirely, it will provide clarity for all parties involved and potentially prevent any family conflicts during the holiday season.
What are your thoughts? Share them with us in the comments below, and we will publish the best responses. If you have your own Moral Money question, please email us, confidentially, at: [email protected]
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