‘Is this a good deal, or should I run for the hills?’ My Boyfriend of Five Years Wants Me to Loan Him $165,000 Using His House as Collateral

Dear Quentin,

I would like your opinion on granting a loan of money to the man I have been dating for five years. He pressed me on this issue three years ago. I didn’t do the loan at the time, and it was a serious problem between us. The term of the loan he got from a third party was three years and expires now. He wants and expects me to lend him $165,000 right now.

He paid $1,100 a month to the previous lien holder, but he wants me to take no more than $500 a month and 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 for this 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 that’s a lot for me because I’m protected with home equity and earn 5% on my money. I would appreciate your thoughts on this matter. Time is critical, as he needs the deal done on 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,

Oh man. There are three reasons to reject his request on principle:

1. You’ve already said no, and it’s disrespectful not to continue to harangue you or pressure you to change your mind. If you were a bank and he kept coming back asking the same question and pressuring the loan officer, he would be escorted out of the building.

2. He is on the verge of his second bankruptcy, the ultimate sign that someone is not financially stable or good at managing their finances. This is a clue that you are not helping him yourself by meddling in his financial affairs. What are the bankruptcy rules in Nevada? A bankruptcy attorney will be able to tell you what would happen to this loan during and after the bankruptcy proceedings.

3. You have a relationship with this man, and asking you to lend him money – with or without his real estate as collateral – mixes finance with romance. The two rarely, if ever, make suitable bedfellows. This creates an unhealthy, codependent dynamic. (Where would that $165,000 come from? A bank account, retirement account, or unqualified brokerage account? Consult a tax advisor.)

And now three reasons why the offer itself is not attractive:

1. You are correct in your concerns about the loan itself. At 74, it’s wise not to embark on a five-year financial commitment. This should be a time in your life when you enjoy life without financial worries – without inviting more into your life.

2. A 5% interest rate is significantly lower than the interest rate on most hard money loans. But this does not take into account the risk/reward ratio. You don’t need to earn 5% on that amount of money, and it’s not worth worrying and stressing about. Moreover, under the terms offered by your partner, the principal of the loan would actually reach $177,609.46 by the end of the 5-year term. (Present loan value: $165,000. Interest: 5%. Number of installments: 60. Payment: $500/month. Future loan value: $177,609.46.)

3. The change in loan repayment terms 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 uses 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. Prior to any loan, an individual or financial institution should establish their own due diligence schedule. Timeshare and used car sellers are notorious for wearing down potential investors under pressure. Real friends don’t.

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