‘Is this a good deal, or should I run for the hills?’ My boyfriend of five years wants me to give him a $165,000 loan using his house as collateral
I would like your advice on giving a hard-money loan to the man I’ve been dating for five years. He pressed me on this issue three years ago. I didn’t do the loan then, and it was a serious issue between us. The term of the loan that he secured with a third party was three years, which is now expiring. He wants and expects me to loan him $165,000 now.
He paid $1,100 per month to the previous lien holder, but he wants me to take no more than $500 a month, and to allow him to keep $15,000 of the loan as a “cushion“ for the future. He says he has enough equity in the house to cover my loan. He also wants a five-year term. I’m 74 and he’s 65. Given that, I don’t want to be tied to a five-year commitment to that money.
Also, he has a pending bankruptcy (his second bankruptcy), and he works for himself as a website builder. We live in Nevada. He tells me this is a great deal for me, as I am protected because of the equity in the house, and that I’m earning 5% on my money. I would appreciate your thoughts on this issue. Time is critical, because he needs the deal done the first of May.
Your thoughts, please. Is this a good deal, or should I run for the hills?
What to Do
Dear What to Do,
There are three reasons to reject his request on principle:
1. You already said no, and it’s not respectful to not keep haranguing or pushing you to change your mind. If you were a bank, and he kept coming back asking the same question and putting pressure on the loan officer, he would be escorted out of the building.
2. He is on the brink of his second bankruptcy, the ultimate sign that someone is not financially stable, or knows how to manage his finances. That’s a clue that you are not helping him or yourself by becoming embroiled in his financial affairs.
3. You have a relationship with this man, and asking you to loan him money — with or without his real estate as collateral — mixes finance and romance. The two rarely, if ever, make suitable bedfellows. It creates an unhealthy, codependent dynamic.
And now three reasons why the offer itself is not attractive:
1. You are correct in your concerns about the loan itself. At the age of 74, you are wise not to get mixed up in a financial commitment over a five-year period. This should be a time in your life when you are enjoying life without financial worries.
2. A 5% interest rate is significantly lower than the interest rate on most hard-money loans. But that does not take into account the risk/reward. You don’t need to earn 5% on this amount of money, and it’s not worth the worry and stress such an arrangement would bring.
3. Changing the terms of the loan repayments from his previous loan agreement also shows a lack of good faith. Asking to keep $15,000 as a cash cushion is another red flag. He is using your romance as leverage to structure this deal. It’s a final nail in the coffin.
Finally, time is critical — for him, not for you. Before any loan, an individual or financial institution should establish their own timeline to do due diligence. Timeshare and second-hand car salespeople have been known to wear down potential investors under pressure. Real friends do not.
You can email The Moneyist with any financial and ethical questions related to coronavirus at email@example.com, and follow Quentin Fottrell on Twitter.
Check out the Moneyist private Facebook group, where we look for answers to life’s thorniest money issues. Readers write in to me with all sorts of dilemmas. Post your questions, tell me what you want to know more about, or weigh in on the latest Moneyist columns.
The Moneyist regrets he cannot reply to questions individually.
By emailing your questions, you agree to having them published anonymously on MarketWatch. By submitting your story to Dow Jones & Company, the publisher of MarketWatch, you understand and agree that we may use your story, or versions of it, in all media and platforms, including via third parties.
More from Quentin Fottrell:
• ‘We’ve been left out in the cold’: My mother named my sister beneficiary of her estate, but wrote a letter wishing to divide it among her 3 children. What now?
• ‘We’re concerned this woman may persuade him to leave his house to her’: My father, 85, moved in with a female friend. How do we stop her taking his money?
• ‘She had a will, but it was null and void’: My friend and her sister are fighting over their mother’s life-insurance policy and bank account. Who should win out?
Tag:accounting, Accounting/Consulting, article_normal, banking, Banking/Credit, business, Business/Consumer Services, C&E Executive News Filter, commentary, Commentary/Opinion, community, construction, Construction/Real Estate, consulting, Consumer Affairs, Consumer Products, consumer services, Content Types, credit, Factiva Filters, Financial Services, general news, lifestyle, living, Living/Lifestyle, opinion, political, Political/General News, real estate, Retail, Retail/Wholesale, society, Society/Community, wholesale