Submitted by Silver-Language1154 t3_yxgjpm in personalfinance
My wife and I purchased a $1.2M home in 2020. Her father offered us a $100k gift to help with down payment. It was unexpected and we gladly accepted.
Unbeknownst to us, to give us the gift he took a loan out against a whole life insurance policy. His “advisor” recommended this approach, and he has been blind-sided by the interest payments (now at 5%). He has asked us to start making the interest payments. In only a few years the interest payments will represent a large percentage of the loan amount. I’ve told him I’ll find a more financially advantageous approach, to include us just paying him back the gift.
I don’t know much about these loans, or whole life insurance, but it seems that the interest payments may not stop for 10+ years until either his passing, or repayment of the loan. Is that how they work? Loan is essentially repaid out of the death benefit?
Am I understanding this correctly? We spoke to him this morning and broached a few options which still allow him to feel happy about giving us the loan: We pay it back (not what he wants), we find other investments of his he can sell to payback the loan, we make principle payments to the loan over next two years while he continues to cover interest.
TL; DR: Very nice FIL took $100k loan from whole life policy and we need a way to reverse this decision and replace it with a more tenable approach. He wants us to pay interest for years and years and that’s a bad idea.