I'm a net borrower with a variable interest rate mortgage secured against my house. Let's say there is $200,000 owing and I'm paying 5% interest to the bank. It has a redraw at-will facility and I'm currently well ahead of the repayment schedule.
My retired parents have various investments and no loans. They want to have $20,000 available at short notice. The bank pays them 3% interest on that account.
The difference between 3% and 5% represents the banks margin. Why don't we split the difference?
Are there any hidden risks or problems with this arrangement:-
- accept a deposit of $20,000 into my mortgage account from my parents,
- calculate 4% interest on $20,000 while that money is there and pay this to my parents
- enjoy reduced interest from the bank while that money is there
- should they need the money, I would withdraw this from the account and transfer it to them
Are there any risks with this arrangement assuming there is not a family falling out?
(In this event, I guess they can write me out of their will).