How to calculate interest on a loan?

[brewsterbudgen]

In 2012 I lent a close member of my family 130,000 UK pounds, to help him pay off his mortgage.  

 

He is now ready to sell the property and will shortly be able to pay me back.  At the time of the loan we agreed that it would be repaid "with interest", but unfortunately nothing was agreed about how the interest would be calculated.

 

Can anyone advise me what the interest could/should be?

[dabhand]

One way might be to calculate the equivalent UK purchasing power of 130k based on CPI inflation calculator.

This website might be useful:

http://www.in2013dollars.com/uk/inflation/2012?amount=130000

 

 

 

[tpkhk]

OP: Congrats on getting paid back.  At least the intent is there.

 

1) Here is a website showing UK average interest rates.  Hi/Low and an average.

https://www.valuepenguin.com/mortgages/historical-mortgage-rates#historical-mortgage-rates

 

2) Please see the attachment - I took a stab at it - using the average UK mortgage rate.  This assumes no payments from the borrower in any of the years.  Assuming you get paid back at the end of 2019, you're owed 178,559.  Also assumes 4.54% interest for 2019... ie. same as 2018.  Also, this will likely be different from the way a bank would calculate the mortgage/interest payments.... bank's methodology likely to result in an even higher amount owed.

 

 

[sanuk711]

There are 2 differant interest rates here brewster......you are being quoted on what he would have paid the bank (nearly 50 grand interest) shouldnt you be looking at the rate you would have got if you hadnt lent it to him but just kept it as savings or where ever it was parked.

Edited March 30, 2019 by sanuk711

[1FinickyOne]

The interest could/should be whatever rate you agree on BEFORE!!! making such a contract... though probably no contract... 

 

Go back to records for 2012 and find out what interest rates for homes were then, on average and apply that. Normally, mortgage amounts pay down the loan but since it sounds as if you did not do that, the amount should be compounded which might get quite expensive... good luck... maybe just find a number that you can agree upon and both be happy with... 

 

From my experience, the people who are so appreciative when I make a loan, end up angry at me when they have to repay it... 

 

good luck.

[Lacessit]

1 hour ago, kenk24 said:

The interest could/should be whatever rate you agree on BEFORE!!! making such a contract... though probably no contract... 

 

Go back to records for 2012 and find out what interest rates for homes were then, on average and apply that. Normally, mortgage amounts pay down the loan but since it sounds as if you did not do that, the amount should be compounded which might get quite expensive... good luck... maybe just find a number that you can agree upon and both be happy with... 

 

From my experience, the people who are so appreciative when I make a loan, end up angry at me when they have to repay it... 

 

good luck.

Lending money to a friend usually ends with that person no longer being a friend. Seen it happen a few times.

As the loan was not repaid on a reducing balance, i.e.  capital plus interest, I suggest the OP should calculate on a fixed rate over the period of the loan. And be prepared to be estranged from that family member. Although he may be able to get an amicable agreement.

 

[Janner1]

1 hour ago, sanuk711 said:

There are 2 differant interest rates here brewster......you are being quoted on what he would have paid the bank (nearly 50 grand interest) shouldnt you be looking at the rate you would have got if you hadnt lent it to him but just kept it as savings or where ever it was parked.

Edited 1 hour ago by sanuk711

Sorry to say but on that basis he would have earned very little as the banks have paid minimum interest since they were all bailed out by savers after they (the banks) caused the collapse.

In must cases the rate has been nominally set at 0.01% for most of us.

 

So perhaps he should be thinking in terms of getting the best he can from his “ friend” and whilst at it keeping a low profile because if the tax man hears of it he the lender COULD be looking at 40% tax on unearned income.

The tax man does not take prisoners.

[brewsterbudgen]

Thanks for all the advice so far. Any more suggestions appreciated. Cheers.

Sent from my SM-G930F using Tapatalk

[steve73]

Alternative method would be to calculate what proportion of the value of the house the 130k represented in 2012 when the loan was made, and then to repay the same proportion now..  In that way the lender is rewarded equally for taking on a unsecured risk.

 

Eg, if the house was valued at say 260k in 2013, the loan would represent 50% of the value.  If the house is now sold for 500k, then 50%, or 250k should now be repaid. 

Edited March 30, 2019 by steve73

[Enoon]

 

 

House Price Calculator | Nationwide

 

You invested £130,000 in a property in 2012, so now your investment would be worth, if it was in the East Midlands for instance, about £170,00.

 

You would be owed about £170,000.

 

Edited March 30, 2019 by Enoon

[DJ54]

OP talk to he close family member you lent the money. Have a chat 

about your conversation and see what their thoughts are and if you 

can live with it fine .... if not negotiate.

[lannarebirth]

The figure that you want to know is called "accrued interest". Decide what the interest to be paid is, let's say 4.5%. Plug it in to the accrued interest calculator along with original loan amount and numer of months from loan being made till it is payed off.

 

https://www.salliemae.com/college-planning/tools/accrued-interest-calculator/

 

If the payback is in 7 years with no payments having been made, the interest will be about 40,000.

Edited March 30, 2019 by lannarebirth