Is lending my son money a recipe for disaster?

Should Jane help her son buy a home or make him save a bit harder?

mother considering whether she should loan her son money

Joan is considering giving her son some assistance to help him buy a home, but she’s unsure whether she should simply let him save a bit harder. 

Q. Joan
My son has asked for a loan of $50,000 to help him buy his own home. I have the money but I’m not sure if I should lend it to him, or go as guarantor for a loan in his name. I currently receive a part Age Pension and would like to know if this will be affected.

A. Firstly, let’s deal with the Age Pension implications before the legal and moral issues.

If you lend your son the $50,000 in one go, Centrelink will consider this to be over the gifting limit of $10,000 per annum. The additional $40,000 will be considered as a deprived asset,but you will be assessed as though it’s still yours. You can gift $30,000 in any five-year period, so your deprived asset will reduce over time.

Your Age Pension will also be affected if you use your family home as security for your son’s loan, or if you act as guarantor on a loan. Even if the intention is that your son repays the mortgage, the loan will be an assessable asset until it is repaid or considered irrecoverable.

Should the worse happen and the loan can’t be repaid, the bank may sell your home to recover the debt. If this happens, Centrelink will treat the money from the sale of the house that is retained by the bank as a gift to your child and will be assessed as a deprived asset for five years.

You may also wish to consider these other factors before handing over your nest egg.

Can your son be trusted?
Of course, he can, you say, but if he’s struggling to save enough money for a home deposit, maybe you need to ask where the rest of his money is going. 

Borrowed money can be a source of conflict
If you have decided that you can afford to have your money tied up for a period of time, but are expecting regular payments, you will need to decide if your son can make these repayments. If you’re relying on the repayments to fund your retirement or cover everyday costs, a missed payment may cause you stress and lead to arguments.

Have your loan agreement formalised
Yes, it’s an additional cost but it is important that you have a legal agreement drawn up. It should detail the amount borrowed, interest payable, repayment due dates, what happens if the loan is not repaid and what happens to the debt should either of you die.

Keep your family in the loop
While finances can be a personal issue, it’s important that if you have other children, you let them know what you and your son have agreed. You’re not asking for their approval or agreement, but it does concern them to an extent.

Whatever you decide to do, remember that the decision is yours to make.



    To make a comment, please register or login
    20th Dec 2016
    One option is to take an initial no interest share in the house. We did this for our sons via a family trust we operated secured via a deed of agreement. Investment return (with capital gains tax liability) is realised via by asset value gain when & if house is sold. Worked for sons & us as we are self funded retirees and we considered the risk as tolerable.
    20th Dec 2016
    Our own experience was unhappy and embarrassing. My husband's son approached him for a $50,000 loan shortly after his wife (the son's mother) had passed away. My husband at that time would clearly have been in a very vulnerable and grief stricken position. However, he was assured the loan would definitely be repaid within 12 months when he would remortgage.

    Four years later when I met my now husband and discovered he was still owed the money, I suggested he ask for its return. Eventually he was paid only $20,000 with a promise of the remainder in 6 months. Eighteen months later it was repaid.

    My husband found this whole affair hurtful and embarrassing having to ask for his money to be returned and he wasn't even given a thank you! He told his son that had his mother still been alive, she would have been right onto him after the 12 mths had passed and his son agreed!

    So I personally would think very carefully indeed not only about the pension implications but also the emotional ones as well. Fortunately, my own children would know better than to ask for a loan from me as I drummed into them from an early age that saving hard was the only way to buy a house and they took that onboard.
    20th Dec 2016
    I don't understand your comment "Your Age Pension will also be affected if you use your family home as security for your son’s loan, or if you act as guarantor on a loan. Even if the intention is that your son repays the mortgage, the loan will be an assessable asset until it is repaid or considered irrecoverable." How can the loan be an assessable asset to the guarantor - a home loan is an asset of the bank. The guarantor has no benefit either financial or in an asset sense.
    20th Dec 2016
    Do not loan your son the money however much you love him.If he can't save $50,000, he will be unable to manage the mortgage and whatever you do don't go guarantor. I had a friend who lost a lovely house in Manly by going guarantor for her son the business man. She ended up living in a rented bedsit. Her son never saw her after this. The above article is right in every respect.
    20th Dec 2016
    NO don't lend him anything! You may need the funds if you need to go into a nursing home in the future or for medical costs etc.etc. Tell him to keep saving and wait until for his inheritance!
    Too many bad stories about parents who lend their children money and end up like revell's friend.
    20th Dec 2016
    If banks won't lend a person they are not deemed a good risk.

    I would definitely say NO.
    20th Dec 2016
    Dont lend them anything. I've learnt the hard way, never got the money back and they don't care that I am now struggling to make ends meet.
    Nan Norma
    20th Dec 2016
    "Never lend money you can't afford to give" Meaning of course that if you can't afford to give it then you should not be lending it. So often children do not repay and it can cause such a lot of ill feeling within the whole family.
    20th Dec 2016
    This is correct. I was going to say the exact same thing! Don't lend money to any of your family unless you are prepared to lose it. It can be an emotionally rewarding act, to help one or more of your family financially, and I have done so with all three of my adult children very recently. All have said they will repay it, but it won't break me if that never happens (of course I haven't told them that!). But I would be disappointed if that happens. AND there would be no further loans in the future!
    The pom
    20th Dec 2016
    Many parents have discovered over the years that lending money to children is often equivalent to giving it. I borrowed money from my father many years ago and put the whole thing on a business basis with calculated repayments at a set interest rate equal to what he was getting from the account where he had his funds. This was cleared on the due dates and we both finished happy. very few "loans " to children are done in this way and frequently just get ignored, even with children who can well afford to repay
    Old Geezer
    20th Dec 2016
    Forget it if there are outlaws involved.
    fish head
    21st Dec 2016
    Painful as it can be the next generation has got to learn that what they want needs to be saved for.Instant gratification for large assets is not on unless one wins Lotto or the like. I suspect this is one offspring who has not learned this lesson. Personally I am horrified that a child would ask this of any parent whether the aforesaid parent has the means or not.Kids are getting too many handouts and developing an entitlement attitude.To be honest, one of mine tried this on for a car until I sat her down and spelled out the associated costs of running it. That scored a thoughtful retreat.
    28th Dec 2016
    Even if my mum had the money (which she doesn't) I would never even consider asking for it. Some kids have no pride.
    4th Sep 2017
    Your children should not need to borrow from you. What is their weekly income? How much are they spending each week on "toys" (new cars, bikes, entertainment, holidays, tech stuff)? Would a bank give them a loan? Would they be able to service a loan? What would happen to you if they never repay? Be aware that sometimes a child can ask for money now - not pay it back - and still expect to get an equal share of what you have when you die (unless you make a will that takes this into account and ensures that all your children get fair shares). No - don't lend or give to children who are fit and able to work, save, and wait for the goodies of life - isn't that what you had to do?
    19th May 2019
    I think it is always tricky mixing family and money. We had a similar situation with our son. But he made a good point that as he was 28, his income would increase pretty quickly over the next 5-10 years and he would easily be able to pay back the $25,000 we were lending him for a deposit. In the end, we decided to use a site to formalise everything thing in a loan agreement so that it was in writing. He paid us back according to the agreement, but you need a trustworthy child to start with is the only catch!

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