The very bank that ever exists for any 10 yr old kid is “The Mom and Dad Bank – funded since your birthday”. This is not always the most generous or the most comprehensive bank that ever been (have you ever dealt with a generous and comprehensive bank anyway?), but this is the only bank that will give/lend money when you are young.
As you grow up, “real” banks will open your doors and allow you to apply for a credit card, a student loan and ultimately for a mortgage. I was 24 when I bought my first home. We just had our son and we were looking for a nice place for him to grow up. Back then, I was able to gather interesting cash down (thx to leveraging!) but I was still missing money to reach the 20% cash down required to avoid CMHC insurance premium. The 20% cash down was also giving me access to the most flexible type of mortgage ever: the Home Equity Line of Credit (HELOC). So this is why I have turned (once again!) to The Mom and Dad Bank.
While I was very excited to purchase my first home, I was feeling guilty that I couldn’t buy it completely on my own. We have discussed this issue with my parents and my wife to make sure that everybody agreed on the very same thing: They would lend us the money for 5 years according to the mortgage interest rate in place (they were mortgage their rental property to lend me the money). Therefore, I was free to do whatever I want until November 2010, the date that I have to give them back the money (along with the interest).
While I would have preferred to not borrow from my parents, I must say that everything is going well so far in term of relationship. They were happy to help us out and they are not waiting to get the money back. However, I definitely want to maintain my good relationship with them and I want to pay them back fully at the end of the year as I don’t want to jeopardize everything.
I think the key was to keep a simple and clear agreement with everybody. We have 5 years to pay them back, the interest rate and date of repayment are known and agreed by both parties. Even though you are dealing with family members, I think it is important to not forget that you are also dealing with money. This is why following such contracts is very important to me.
I think the worst part about owing money to someone close is that you feel bad of spending money on vacation, renovating your home or on a new car (the situation is a bit more complicated regarding the car issue…). Each time you spend money, you think that you might have put this amount aside and pay back a debt. I guess this is why I am looking to pay back my parents completely according to the original term of our agreement.
Gathering 31K in a single year seems almost impossible at first glance. While I was regularly putting money aside during the first 4 years, I ran into a few speed bumps that made me spend this money in one way or another. I have always thought I had enough time to pay them back “later”. But “later” is about to come to an end as November is getting closer and closer.
Honestly, I don’t think about not paying them back completely yet. I think that I could still manage to gather enough money before November through my online company, my savings and a potential salary increase (yes, I am working on another one at the moment).
I would be curious to know if you have borrowed money from your parents or friend? How you have dealt with it? Did you reimburse in time?
image source: kyz
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