Lending money to family member

I'm going to start by saying I know nothing about finance, but I am trying to learn.

My sister has just bought a house and has asked to borrow 120k from me (I have about 200k resting in a high interest bank account). I have no kids or debt, so am able to lend her the money. She and her husband have high paying jobs and have assured me that they can repay me within the year (with 2% interest on the loan).

My sister told me that she has 300k in EFTs, which she can sell to pay the deposit, but would prefer that I lend her the money. This has made me suspicious that perhaps she is trying to take advantage of my generosity by offering me a rate that is lower than what I would make either investing in a high interest account or in shares (I'm thinking about investing myself). My family are pressuring me to lend her the money as she has two young children to support. I want to help but I also think it should be reasonable.

Comments

      • Doesn't sound like a loan, just helping a brother out. I've personally got a much smaller amount of money from my parent's in an offset so I can help them with any emergency that may occur while they travel. although I'm pretty sure it is just there to help with my interest payments.

    • +9

      Get ready to start questioning everything they spend. They go on a big extravagant holiday? Buy a new car? Always have the latest iPhone? Well why can't they pay you back quicker.

  • +2

    Asking for money while you have already your own money is a red flag.

    Charging interest fee on your sister is a red flag.

    What a family.

  • +2

    Dude……

  • +1

    EFT = Extra Fungible Token?

    • +1

      Electronic Funds Transfer

    • +2

      Probably meant Exchange Traded Funds / index funds

  • +5

    No No and again No. If she has money tied up in investments herself then she needs to use that and not borrow from you for the deposit and also have a bank loan to repay at the same time.

  • +7

    Sounds unfair that your parents are pressuring you. I get the feeling they have some type of hold over you. Maybe they think you’re still a child that will listen to everything they say. Tell them to politely FO. The deal is about helping your sister get richer while you get left behind and told what to do.

  • Honestly speaking after your sister is married, she has more responsibility for her new in laws family, and her children.

    If it was before marriage it would be a different scenario.

    Still I'd say it really depends on how your relationship is with your sister, and how she feels about you. Keep in mind MONEY CAN CHANGE EVERYTHING, it can destroy homes, and make homes too.

    If you honestly believe you can trust your sister, go ahead and help her out. (SHE IS SHE, YOUR PARENTS CAN'T GET YOU YOUR MONEY BACK, she's a married adult).

    See it at very least with same or higher risk than your investing, (aka YOU MIGHT LOOSE 100% of your money, Invest only what you CAN AFFORD to LOOSE, with consideration of any profitable returns)

    120K is a very large amount. I'd personally suggest give a lower amount, you should care about your own family first (like if you are married, if not married why aren't you saving up for your home first? ). May be go lower on helping her, something like 30K (which itself is a big amount too, but a lot easier for them to return given they make good money according to you)

    • Good advice. I think my family believe I should help her out because i have a good job as an engineer, am single and am pretty frugal. I don't have any major expenses but 120k is still a lot of money.

      • Your sister has a good job too. And has 300k, so she's been frugal as well?

  • +9

    My sister told me that she has 300k in EFTs

    If this investment doesn’t work out it will be her excuse not to pay you back. Also you don’t even know if she really has these investments.

    would prefer that I lend her the money.

    Sure she would, but there’s no reason that you should.

    I'm thinking about investing myself

    And you should. You never know, you might have your own kids one day that you want to provide for. Or you might want to retire comfortably.

    My family are pressuring me to lend her the money as she has two young children to support.

    Her and her husband are responsible for providing for their own children, and it sounds like they have the means to do so. Not having children doesn’t void your right to invest your own money for your own benefit. I have a kid, my brother doesn’t, not once have I ever thought I’m more entitled to his money than he is, I would never consider even asking something like this if him. Having kids doesn’t make them special.

    Don't do it you may never see your $ again. If their jobs fall through, if the EFTs fail (if they even exist), if they get divorced, if one of them makes a poor investment, has a gambling problem which you’re unaware of (more common than you’d think), one or both of them get sick, they just decide to be A-holes… way too many things could go wrong.

    I wouldn’t even loan a smaller amount unless you’re considering it as a gift.

    • +1

      This is good advice - I also question whether that 300k exists. People with high paying jobs still get into dead and spend out of their means

  • +4

    No, Don't do it. You will be running around for years trying to recover your money, it will destroy your relationship, she should sell her ETF's.

  • +7

    if your sister has $300k in EFT and works in a high paying job, tell her to use her own money.

    obviously I don't know your sister, but at least based on the opening post, sounds like she doesn't want to miss out on whatever gains she is hoping to get from her EFTs, but instead wants you to bare/wear the opportunity cost, that doesn't paint a very nice picture if you ask me.

    and with your parent negging you to transfer the money, I guess you are probably not their favourite child?

  • +2

    This post is BS. Such a high rolling family and not enough money to buy their own house.

  • +2

    No way in heck.

    Make up a lie if you have to if you think your family won't get off your back. Tell them you donated it or you have a gambling problem or that you've been boasting because you wanted to seem important.

  • +3

    Would she do the same for you? Seems no, answer is no

    • We have a good relationship, but she has financial responsibilities and I don't. So no I wouldn't expect she would.

  • +3

    I find it amazing that everyone in your family knows that you have 120k+ money resting in your account !

    Either you guys are very close knitted family type people or you boast alot abt your wealth (apologies no offences though). Both the cases are sure shot for toxic vibes.

    She has not bought yet and needs it for deposit and feels like she can rean good returns on her ETF investment.

    Not fair for you mate.

    No.

    I would say in this case tell them you starting a new startup with overseas friends and might need some money from all family memebers instead.

    You will see their real faces then.

  • +1

    From your post it looks like you are not comfortable lending this money. In real world, situations can changes without any notice. So if you are lending do not expect them to pay back on time or be willing to loose all/part of the money. In my case, my brother lent me 100K to buy my PPoR and I returned the favour in 3 years time with interest (120K returned) for him to buy his PPoR. We are both not very close but we know we can rely on each other when required. It was win-win for both of us. And in a separate transaction, I was able to help my wife's brother with 200K again for him to build his PPoR which was also returned back to us as per the informal agreement.

  • -1

    Gn fam,

    It's 👍 to see financial markets getting crushed.

    Ask your sister how their ETF is doing. I'm guessing they don't want to sell because it's a bloodbath.

    Tell your family that you'll use the $200,000 to BTFD.

  • +3

    Do it.
    Then in 2 years time you can post on OzB "I lent my sister $200k, how do I get it back?"

  • +1

    Why is everyone so uptight, they are helping each other out. Sister earns more from her eft's and brother earns more on his interest. Only the bank loses out. Just write up a simple contract between each other if you decide to go in that direction.

    • Agreed. OP's opportunity cost is the interest he gets from his bank. He should factor the risks in lending to sister and make sure the rewards are appropriate to cover that risk.

      • +1

        Banks paying interest is the joke of the past 5Y.

    • 2% is laughable for the risk and it seems like their is no plan of repayment

      the market is dipping

      OP is in a good time to buy

    • +8

      On the contrary - not lending the money is valuing family over the money.

      • OP is uncomfortable with the idea. They should not be pressured into doing this, family or not.
      • The sister already has more than enough assets to cover the requested loan. Hence the money is not a critical need.
      • The family is already trying to make emotional appeals to a financial decision ("they have two young kids") over money that is not critical (see above).
      • Why is the sister's ETF more important than OP's money? It seems like OP's hard work in saving isn't taken seriously here.
      • Having two high incomes but somehow not saving enough, appealing to emotions and unwilling to draw upon her own assets are all potential signs of risk that the loan will not be repaid as promised.

      There are three possible outcomes to this scenario:

      • Sister repays money on time as agreed. OP is happy with a 2% return and sister is happy to have ETFs.
      • Sister fails to repay money on time and makes numerous reasons why (ETFs went down. Kids had expenses.). OP stays polite and quietly harbours resent towards their sister and the family.
      • Sister fails to repay money on time, and OP nags them to repay. OP resents sister and family. Sister resents OP over the nagging.

      Two of those three scenarios result in family resentment.

      The one happy scenario gets a 2% ROI and sister gets an unknown gain or loss from ETFs. Essentially, you are gambling your family's happiness on a low/unknown financial ROI.

      • +1

        100% this response.

  • +8

    I have loaned a sizable amount to a close family member but I went to a solicitor and drew up a Deed of Loan and then registered the loan as a mortgage. In your case, the Deed could be based on the specific conditions agreed between you and your sister. The mortgage is to protect both you and your sister in case of hard times if other creditors want to demand their repayments, mortgages have first call on any assets. Further, if you register the mortgage for the full value of the home, and assuming she has no other mortgage, someone else cannot throw her out of the house to recover their money as you hold the mortgage for the full value of the home. Remember, irrespective of the value of the mortgage, she only repays the loan amount as per the agreement, which can be varied over time by mutual agreement.
    Bottom line….get legal advice, it doesn't cost much to do a Deed if Loan and register a mortgage, first visit probably free, but $120k is a reasonable amount requiring some security for both you and your sister.

    • +1

      Its the only way to do it, i reckon. Its all a bit….icky, but you need to protect yourself

    • Bank would hold the first mortgage

  • +3

    DONT!!!!!!

    • +4

      Do Not… (bad) :+(

      Donut… (good) :+)

  • If you dont mind loosing your sister and the whole rest of your family lend her the money.
    If you dont want to loose (as above) gift her the money.
    or just stay out of it.

  • +4

    Never, ever, ever, ever, ever, ever lend family or friends money… ever. She is basically transferring all the liability to you.

    I find it amazing that everyone in your family knows that you have 120k+ money resting in your account !

    Yeap, letting people know about things like this are big mistakes.

    • I've discussed buying a property with my sister in the past. My sister has an MBA so I trust her financial advice more than my own and we are close.

      • +1

        If you thought it was a great idea, you wouldn't have posted here. You are forgoing your own financial security to help her. Many people on a single income (and less than a single solicitor) support 2 or more children without asking family for handouts.

  • yep troll

  • It sounds as though your family is putting pressure on you because of your sister, her husband and young family…

    Here is an out of the box solution, do you need a husband too? You can both be in the same situation then and removes the issue of the family pressure.

    There may be a small fee involved but I'm sure there would be some potentially happy house hubbies out there :)

    Just a thought.

  • +1

    Lol no

  • +2

    And… another no from me. My grandfather used to say when it comes family, it's better to give them money than to lend it to them. That way, you are not disappointed when you don't get it back.

    Long story short, my mother-in-law has been stiffed a couple of times by two of her sons. She lost her house. They have money but aren't paying back a cent. And, one of my dip-stick brother-in-laws had actually signed a contact to pay back so much a week.

  • +2

    This is why you don't tell people how much money you have in your bank account, especially family.
    This is a hard no for me.
    I have been burnt before by family for a small sum and decided my new motto is I don't lend money to anyone for my peace of mind.
    Tell your sister you have decided to use the money to buy a unit and she can sell her EFT's.
    The audacity!

  • Blood is thicker than a loan contract. When you give money to family it is always a gift until such time as it is repaid. Hence decide what size gift you will give your sister and when / if it is repaid then that is a bonus!

  • +1

    Lend them the money, this allows them to stop annoying you, get collateral, get ownership of their property and be on the land title as part owner.

    That way you will have equity incase they block you and don't pay back your money!

    • and then what? take them to court over that joint ownership?

      and lose his family over 2%?

      bad advice.

  • +1

    a) They should be paying you back at home loan interest rate and a bit more. You're saving them essentially 2-3% on their home loan (it's more because of compounding interest), and they're only giving you back a portion of it…?

    b) Why would they buy a house they can't afford…? Sounds like they're not good with money

  • If you decide to lend her the money, get on the title as Tenants in Common, and when she pays you back it is either 2.5% compounded monthly or the percentage of what the house is worth at the moment she finishes paying you back, whichever is more. At least if she never pays you back you will have an interest in the house so will get paid when it sells.

  • +1

    The trolling is still working with people still posting.

    • +1

      maybe the OP is indeed a troll, but I have seen similar thing in my own family when it comes to money and parent's favouritism………

      some years ago my mum and brother started a business together, my mum paid for 80% of the start up cost and my uncle paid for the remaing 20%, and they spilt the ongoing cost and profits accordingly.

      a few years after the business started, my grand parents found out about the arrangement (or my uncle complained, who knows), eventually they managed to neg my mum into giving my uncle 50% share of the asset and profits (from day 1) of the business. I guess being the only male child in an old school Asian family has it's perks.

      and no, things didn't end well.

      • Check out OP's posts and responses and then see if you fell for it.

  • +1

    Soo what you're saying is they can easily raise a 120k deposit in a year but have this far been to irresponsible to do it?

  • I can’t stress this enough - always have a lawyer draw up a contract for the loan. Make sure it’s a good lawyer and not the cheapest you can find.

  • +7

    Oh OP I feel for you. What your parents are doing is not okay. What your sister is doing is not okay.

    I know this is causing a rift already, but the rift will be far greater once you've lent the money and never see it again. When you have a family, it is your job as a parent to provide for that family, not ask someone else to! You need to be firm. Move the money into a term deposit or somewhere where it cannot be accessed. Hell tell them you felt inspired and have started looking for a house of your own. Do not under any circumstances lend this money. Everyone on here saying don't do it speaks from experience of some kind. So very many people have been burned this way. "No." is a full sentence even if they don't respect that.

    If they've bought a house they cannot afford then what do you think is going to happen if you lend them money? And if they can restore that money in one year, then they can use their ETF money easily. Run run run and don't look back.

  • No way.

  • $120k would be too much based on your current liquidity and may clash with any plans you may have.

    If it were $10k or $30k then that wouldn't be an issue in my book.

  • +1

    Far too risky.

    There are way to many assumptions, resentments, and other "history" within families. Only lend to her what you are willing to lose as it is very likely that you will lose it, and therefor the relationship with her too. Better to say no or come up with some other excuse why you cant.

    • +1

      Indeed. As one US president said "I don't give jobs to relatives because family politics are far too savage to be brought into real politics".

  • +1

    Same as everyone else - This sounds like a bad idea and it feels like you're not comfortable with it. If you do go ahead with it though, think of it as a gift until it is repaid.
    Quite selfish to tie up all their money in ETF and their Super and then borrow your money and give a low return. Best case you get your money back with a small amount of interest.
    Worst case you lose it all (For them it's win-win for them though).
    If they can afford to pay it back so quickly i dont see why they need the money in the first place (that's paying back 2.5k a week) on top of their weekly expenses.

    If you need an excuse and you're living at home you can always say you're about to look at buying a property as well(or a high yield AMG) and need the money for your deposit if you need an excuse and don't want to say no?

  • It honestly depends on the type of person she is. You must be having a gut feeling for that, what she has done for you in the past, how she treats you, what's your value for her etc.

    If you lend, make sure that every thing is written and documented with all the T&C's

    • who asks someone for 200k to buy a home - just get a cheaper home

      • Apparently Sisters !

        • +1

          It's a 1.6 million dollar home in Melbourne. They had very particular demands about what they wanted.

          • +1

            @decisions2526: How she has been with you in the past ? Does she used to take care of you ? Is she elder then you ? Does she shared her things with you ?

            It depends on person to person. I can lend my brother 500k, if I have that much, but not to my sister. One has always cared for me and the other has always tried to gain benefits.

            • @ChipsChicky: She is two years olders. I trust her, and don't think she would willingly take advantage of me. But she has a family to think about at the same time.

          • +2

            @decisions2526: None of which are your responsibility at all.

    • most contracts aren't worth the paper they're written on

      especially in family, the offender would pull out all kinds of sob stories to avoid having to pay back anything

  • +1

    My sister told me that she has 300k in EFTs, which she can sell to pay the deposit, but would prefer that I lend her the money.

    Yeah nah. the fact she feels entitled to ask you to give up more than 50% of your life savings on a unsecured loan so she doesn't have to sell investments that may or may not make HER more money in the future is a huge red flag. Run for the hills and save on christmas presents this year.

    I would also like to see you suggest ownership stake in the property with your 120k on tenant in common split and watch how quickly she sells those ETFs

  • It sounds like she has a lot more assets than you do, so it does seem like a big ask. One reason she might not want to liquidate her EFTs right now because the share market hasn't been doing so hot so far this year. Not gonna get the best return, not to mention her CGT obligations if she sells.

    It's really up to you. A good excuse is to say you're looking a property yourself so need the money for a potential deposit. Otherwise offer to lend a fraction of what she's asking.

    • "Not gonna get the best return, not to mention her CGT obligations if she sells."
      Na, if the return is poor there is no CGT obligation. It will be one or the other, not both.

      OP has a sister who clearly is an entitled Karen - wants a very particular house so kid sister gets to pay for it, despite Karen having enough money to get what she "needs".

      • There's only no CGT obligation if you make a loss.

        She could very well be in the black with a large portfolio like that, but that would contrast to what she could've got if she sold it, say toward the end of last year.

  • +1

    Don’t do it

    /end thread

  • +1

    I would draw up contract for part ownership if the property. There should be a clause added that the value be the higher of market value or initial contribution.

    • Bet you she says no to that.

      • I'm sure she'll suddenly magically find the motivation to sell the ETFs then

  • too bad, dont do it, tell her to sell the EFT's and pay it herself, if they ask why just tell her you gonna be buying bitcoin on the new dip due to the Ukraine thing. its believable

  • +2

    Don't lend money to people, especially family, that you cannot afford to lose. Why? In this case:

    My family are pressuring me to lend her the money as she has two young children to support.

    Guaranteed this'll become a reason why she misses any repayment plan. She will play the kids card on you.

    $120k is a lot. How will they pay that back to you on top of mortgage payments?

    She and her husband have high paying jobs

    Yet they need to borrow money from you? Seems like they can get a bank loan.

    My sister told me that she has 300k in EFTs

    Good. She can sell half of them. That's what investments are for. To make money to fund things like this.

    TL;DR - Red flags everywhere. Don't lend the money.

    EDIT: If you decide to go ahead and do it, put a lien on the house. This will guarantee that you will get your money back if they choose to sell.

  • you need to invest your $$ better

    Bank high interest is nothing. 2% from your sister is also nothing. You need to make your $$ work better

    buy the dip when this war starts, buy an apartment etc

    Major red flag is both have "high paying jobs" but they only have 300k in savings. Hate to break it to you buddy but even if they pay it back it wont be for years. Youre going to be last to see $$ after repayments, living expenses, new car etc

  • +2

    A mate of mine the other day mentioned that his younger sister (20) asked him to buy a car valued at 15k. Not a loan, just a gift to buy her first car. She works and has 30k in savings.

    Like seriously, wtf is wrong with family. Everyone thinks they're entitled. Glad I never got shit from my parents. Not even on my bday. People need to learn to make it on their own

    Mod: Removed profanity

  • This sounds like a bad attempt at a bait post?

  • +2

    My views & experience on this.

    In my last 3 big purchases, my brother-in-law gave me money, ranging from 60k to 350k without any formal contract so it all depends on your relationship with your sister. I have always returned the money on or before time with reasonable interest.

    My brother-in-law is very much risk-averse and there is no way he will put money in ETFs/shares so he is happy to keep his 60-70% savings in cash on a high-interest account. He is a high earner, lives in a flat with a very modest lifestyle along with his partner, who also shares the same financial views as him. He is always keen to lend money to me because I offer him better rates. He also knows I take money from him to invest when I have my own savings.

    in short, it all depends on your relationship with your sister, do you trust her, how risk-averse you are to invest your saving, when would you need your money back. If I were in your shoes, I wouldnt do, simple because you are being pressured to do that.

  • No

  • +1

    I must be in the minority.

    Assuming I won't need it in short term, I'd be happy to lend.

    I suppose that's because I've been on the other foot. Borrowed $200k from a family member during building my family home, even though I had loan facility, didn't even pay interest because banks were paying 1/10th of F all. Repaid when I sold the old family home.

    I wouldn't feel pressured to lend, if you don't want to just say that you're looking to buy your own house right now.

    I suppose the reason why I'm happy to lend/borrow, is that as a migrant, my uncles/parents did that when they arrived in Australia so each family could in turn buy their own house.

    • Let’s be clear. It has nothing to do with whether you are a migrant or not. It has to do with experience. Yours has been positive. Mine has been negative.

      • Just sharing my family's experience.

        My extended family wouldn't have been able to buy houses within a few years of arriving in Australia if it were not for family members lending money to each other.

        Wish you all the best if you're still owed money.

        • What I am saying is that the fact you are a migrant has nothing to do with this topic of lending money to family.

          Unless it does?

          • +1

            @Vote for Pedro: Just explaining my rationale and attitude on why I’d be happy to lend money to help a sibling.

            Perhaps this attitude stemmed from when my Family came with nothing but the clothes on our back, parents worked hard, dad 2 jobs for years.

            With the help of family, were able to buy a house. Later on helped other family members buy a house.

            My attitude to money is that’s it’s only money. Screw me over, it’ll hurt but at least I know who you really are and then you can get the (profanity) out of my life.

  • +1

    If you already have reservations about your sister and trust issues, then don't do it. I deduce those issues exist otherwise you wouldn't ask a bunch of randoms.

    If you do lend it, you'll probably end up getting upset at their spending or other money decisions once there is a late repayment or reduced amount etc.

  • Lend money is a big no no when they have investment.

    If you must lend the money you should require them to pay you the same rate of return as the EFT. If they refuse then tell them to sell the EFT instead.

    People find all the excuses in the world. Today no money tomorow can go holiday or buy a new car.

    For parents who want to help their kids with a home loan the only recommedation I can made would be the Parent Assist Home Loan or similar product. I believe Bluebay and La Trobe Financial have these products. You should never be a guarantor if you don't understand the risk involved. Alternative Westpac as the family secrutigy guarantee which could be used as a cash gurantee instead of gifting cash to your kids.

  • +2

    I heave leant money to family. It was always at a rate matching or exceeding the average I get from stocks but lower than they would pay to the bank for a personal loan. Everyone wins.

    2% is too low. Asking for cash when they have liquid assets standing buy is also worrying.

  • +1

    I'll say what's already been said plenty of times. No. Do not lend money to friends or family. If you absolutely must, treat it like a gift. Can you afford to gift your sister 120k?

    • +2

      No I'm single. I would like to buy a unit one day (wouldn't buy a 4 bedroom house like they did). 120k is a lot of money.

      • +1

        If you can't gift 120k, don't loan it. Simple.

  • +3

    Whatever you do, do not lend her the money. This will end in tears. Even if she isn't flat out lying (I assume that she is though), she has some hair brained scheme that will only hurt you.

    Don't even guarantor her loan and don't tell your family how much money you have. If anything tell em you lost it.

    • 'If anything tell em you lost it'

      yeah - the S&P500 has been going down this month, so you can just tell them sorry - you'd love to help, but your investment has just gone down the toilet

  • 'I have about 200k resting in a high interest bank account). I have no kids or debt, so am able to lend her the money. She and her husband have high paying jobs and have assured me that they can repay me within the year (with 2% interest on the loan). My sister told me that she has 300k in EFTs, which she can sell to pay the deposit, but would prefer that I lend her the money'

    you have 200K, she has 300K, yet she 'would prefer' that you give her the money ?!?!? WTF with that !?

    that's an easy NO from me - if you give her this money, expect excuses, delays, problems, 'difficulties' to prevent repayments, until at some point the relationship is irretrievably broken and you write off the total loss to life experience.

    if/when you start insisting on the promised repayments, expect insults on how you are a bad sister, after which they stop responding to you.

    a definite NO from me - I'm old, retired, financially experienced and have seen too many stories of how this goes bad.

    in short - just don't.

  • Just thought of an alternative reason (not sure if actually possible and any financial implications).
    Maybe she just wants to put the money into her offset account to reduce the interest portion of her loan and payments pay off more principle? She can give back the money anytime.
    That'd be more favourable but i still wouldnt loan that much money.

Login or Join to leave a comment