Loan repayment help

Question

My dad got a loan against his house for $40k and let me borrow 10k. The terms were that I would pay him back the $10k I borrowed. I have since paid $16,800 and my dad says I still owe another $5,800. I pay $400 a month and have been doing so for 42 months. My dad hasn't paid since the beginning of the loan. I understood that he would pay the monthly minimum of $400 and I would pay $400 and my payment would be principle payment. Well I have been the only paying and only $100 goes to the principle. I truly think I have paid my part. Am I wrong for not wanting to pay anymore? How do I tell my dad I am done paying? Don't want this to cause trouble between us.

Answer 1

You have paid $16,800 or 42 payments of $400 so far.

If I plug $10000 loan value, $400 payment, and 42 for payoff time, I need to crank the interest to 32% to solve the payback.

I would tell your father that you are have to have paid what you have paid so far, but you borrowed just $10,000, and even at 18% annual interest to a credit card, 42 payment of $323 would have paid this zero. If you've been making all the payments, he can easily see the balance owed is all his. You didn't mention the rate, but keep it simple. If it was 5%, 3.5 years * 5% * $30K = $5250. I am certain his balance is less than that (The $35K total).

Nothing is clear, except that he is expecting that you will pay the interest on all $40K, which is what is resulting in a crazy rate.

We can add this post to the list of warnings on getting involved with any relative in a financial matter.

Answer 2

Am I wrong for not wanting to pay anymore?

If you are asking if you have fulfilled your end of the agreement, and you agreed to pay back $10k interest-free, then it's obvious that you have paid back the full loan plus 68% of the principal in interest.

However, it seems like there's more going on than that:

I understood that he would pay the monthly minimum of $400 and I would pay $400 and my payment would be principle payment. Well I have been the only paying and only $100 goes to the principle.

It sounds like you expected to borrow $10k then pay back $10k, no extra conditions or interest. From what you say, it sounds like he is taking your payment and using as his monthly payment for the loan and wants to continue this until the principal on his loan is paid down $10k to $30k. This is likely since the first payments of a loan often contain a much higher percentage of interest than principal. If this is the case then you have essentially been paying the interest for the whole loan and your father expects you to continue to do so until $10k of principal is paid.

How do I tell my dad I am done paying? Don't want this to cause trouble between us.

Whether it was intentional, accidental there was a big miscommunication between you. People are naturally very defensive about money, especially when there's family involved. If you choose to confront him about the miscommunication then there will be trouble. If you think it's worth it to confront your father then do so very carefully. For most people an extra $12,600 is a significant sum, but keep in mind that relationships are priceless and tend to last much longer than money.

Answer 3

I cranked the interest rate up to 24%, compounded monthly. This is a ridiculously high rate. At $400 a month, your loan was still paid off in only thirty-six months, after paying $14,400. Even at that ridiculously high interest rate, you have already overpaid $2400.

The other side is that your father may feel that you agreed to this. He gave you $10,000, and you are paying him the $40,000 principal that he borrowed. It's unclear how well he explained this when you started the loan, but it's consistent with your explanation.

I understood that he would pay the monthly minimum of $400 and I would pay $400 and my payment would be principle payment.

You seem to have a different understanding of which principle is involved. He seems to be asking you to pay the entire principle of the loan while you seem to have thought that you were getting an interest free loan.

Paying $40,000 for a $10,000 loan is not fair. That's an interest rate of 47% with an APR of 58%. That would be illegal in many places. And that's assuming that he doesn't expect you to pay the whole loan.

You might try talking this over with another family member. Your mother, one of your father's siblings, etc. It may be easier for someone else to point out to your father that this is an unreasonable arrangement and unfair to you. Also, it may be easier for you to convince someone other than your father.

If all else fails, consider Judge Judy. He could sue you for $5800 (the amount he says remains on the loan). You could sue him for $3000 (the amount you overpaid at 18% interest). Judge Judy decides who actually pays whom. Then if he loses, he's mad at her not you. Their show pays travel costs and likes to highlight life lessons, e.g. don't make bad loan deals with family.

Answer 4

The biggest issue for your situation is that:

I understood that he would pay the monthly minimum of $400 and I would pay $400 and my payment would be principle payment.

Apparently he either did not understand it this way or was unable to uphold his end of the bargain and is deciding to screw you over.

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A fair reconciliation?

What is the interest rate of the HELOC?

Did you and your father agree to a maturity date?

A HELOC is a revolving line of credit so money can be borrowed as often as you need it. I sure hope he is not continuing to borrow from it and making you pay for it.

Presuming the full $40K was drawn at once and never a penny more then it really, really sounds like your payments are absorbing the brunt of the interest on the full $40K.

For comparison, paying minimum payments (about $400) on a 15 year mortgage at 8.8% will take almost 6 years to get the principal below $30K; BUT the interest paid will be over $18K

Anyways, after 15 years the entire loan will have costed $72,173.06

For fairness sake, assuming you both agreed to minimum payments, 25% of $72,173.06 is $18,043.27 which would take 45.11 months to pay off at $400/month

Looking at a 30-year amortization schedule will make you sick to your stomach so I'll let you check out those figures for yourself. Hint, it will cost YOU $36,063.08 based on my "fairness" calculation from above.

http://www.bankrate.com/calculators/mortgages/amortization-calculator.aspx

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As for "How do I tell my dad I am done paying?"

Get the cold hard numbers from him and ask to see the loan terms and conditions. You must know the interest rate or else you will not get far. Play with the amortization calculator and make a strong case for yourself. If the numbers are on your side, great! If not then be prepared to continue paying until a "fairness" point has been reached.