Lending money to the kids

Buying a home has always been a significant milestone for many individuals, but with interest rates and inflation on the rise, first-home buyers are under more pressure than ever before. As a result, many are turning to their families for financial support to achieve their dreams of homeownership.

However, lending or gifting money to kids can be a tricky situation, especially if a breakup or dispute occurs. To ensure that both parties are protected, it’s best to have the right agreement in place upfront and in writing prior to advancing any funds. It doesn’t have to cost thousands to put an agreement in place, and it’s always better to be safe than sorry.

At JBS, we can help you get started with some essential questions to consider, such as the purpose of the loan, repayment terms, interest rates, repayment schedules, and what events should trigger repayment. Once you do start advancing money, it’s crucial to keep clear records of the funds that have been advanced.

After all, it’s the hard-earned money that you and your family have created over the years that you are wanting to protect, so here are some questions that can get you started when going to a lawyer to get an agreement drafted:

Consider the purpose of the loan, e.g. “To purchase a principal place of residence in Victoria” (this isn’t required but is often helpful)

  • When is payment to be made? (e.g., “by electronic transfer on XXX)
  • Is interest to be charged? Annually, every say 5-6 years, or at a certain date in the future?
  • What rate?
  • Are repayments to be made:
    • How much (either an amount per month or just interest or none at all)
    • If not, note that agreements are more enforceable where there is a repayment schedule, however small.
  • How often are repayments to be made?

On what events should the advance be repaid?  This can include:

  • On the death of the borrower,
  • On separation of the borrowers,
  • The day that the borrower is declared bankrupt, a specific date, e.g., 30 years after the commencement date,
  • OR a specified date

Is the loan to be secured by an actual caveat, mortgage, or the right to lodge a caveat?

It’s also important to keep clear records of the funds that have been advanced once you start lending money to your children. If you need more information or a referral to a specialist in this area, please reach out to one of the JBS team members, as we can help steer you in the right direction.

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