This is part two of a two part series on loaning family money. This is the GOOD part. (the not-so-good part is here)
Last year my darling bro was considering his first foray into home ownership. He was certain he could afford his condo, but he just wanted to be 200% sure. At the time I had a couple hundred dollars at my disposal each month, so I offered to hook him up.
Having just gone through the process myself, I knew it was kinda scary so we came up with a plan (might sound familiar from my net worth updates) and The Bank of J. had its first customer!
The Loan Details
We threw around some ideas, and ultimately came to the best way to pad his liquid cash AND relieve a little stress. It’s pretty laxed over all, but we put down in a contract enforced by Dad. They always like to do that, don’t they? Here’s what we came up with:
- $123 a month (10% of his total mortgage payments)
- 5% interest rate, compounded monthly. I wanted to bang out the importance of compounding interest and all, as well as make it more “official” (and likely) that he’d take it seriously and pay me back.
- He can stop receiving payments at any time, no questions asked.
- I can stop sending payments at any time, no questions asked.
- No repayment date – in theory. He can pay back any and all of it at his own discretion, but it’s “understood” that he’ll do so as extra money comes in – or when/if he sells the condo.
The Past 10 Months
My brother has a tendency to lose track of things – even checks! So it hasn’t been the smoothest of transactions over time, but it’s not the worst that can happen, so it’s all good. In fact, i’ve grown even more patient with him! Here’s a breakdown of all transactions, along w/ the running total that I send over to keep things organized:
- Oct check – $123.00 – cashed
- Nov check – $123.00 – cashed
- Dec check – $123.00 – cashed
- Jan check – $123.00 – cashed
- Feb check – $123.00 – cashed 3/05
- Mar check – $123.00 – cashed 3/26
- Apr check – $000.00 – *lost*
- Apr/May check – $246.00 – cashed on 6/2
- Jun check – $000.00 – *lost*
- June/July check – $246.00 – pending
Total with 5% interest (compounded monthly): $1258.54
*i used the calculator at: http://www.coolmath.com/calculators/calculator-annuity-1.html
Re-Payment is Near
We’re going on the 11th month now, and he’s already good to go! Not only has he gotten all his finances in order, but it seems he’s actually INTERESTED in personal finance! *gasp* Perhaps his older brother has been planting some good seeds? (Uh thank you.)
The last loan installment from the Bank of J has been sent, and the period of re-payment officially starts today. I think sometimes people just need an extra push to get them started. And while he hasn’t started paying me back yet, I’m pretty confident that it’ll go smoothly. You’ll be the second to know if it doesn’t! (He’ll be the first ;) )
There’s a HUGE difference between my brother’s situation, and my uncle’s situation, but it does go to show that everyone has the *potential* to follow through with their promises. Thus, I shall continue to loan away!