How screwed are we?
December 7, 2010 5:02 PM Subscribe
Please help me figure out the financial consequences of this clause in the loan agreement.
My SO's employer offered a house loan whereby the employer would pay 50% of the interest on the loan, which was payable in 96 monthly payments (8 years). The clause for which I am trying to understand the potential ramifications reads:
If the Borrower leaves the services of the Company prior to repayment of the full amount of the Loan and the Markup, interest at the prevailing bank rate shall be charged on the total amount of the Loan due from the Borrower from the date on which the loan was granted under the Policy.
The interest rate at the time the loan was made was 12%. So we have been paying down the loan on an amortization schedule based on a rate of 6%. The current interest rate is 14%. The initial sum financed was 270,000, and 34 monthly payments of 3,548 have been made. According to our current amortization schedule, the outstanding principal is 186,149.
We're trying to figure out what we will owe the company if my SO leaves the company at this point.
Should we assume that the amortization schedule would be redrawn with a 14% interest rate and with us having paid 3,548 every month? Or is there some other way of doing it? When I plug in a 14% interest rate and our 3,548 payments, I end up with an outstanding balance of 251,767. Is that correct?
We can't really ask the company because we don't want to tell them SO is planning to quit. The question is anonymous because of financial info. I understand that any answers will be speculative. I am most interested in seeing potential ways that the clause could be interpreted so that I can figure out plausible best and worst case scenarios.
My SO's employer offered a house loan whereby the employer would pay 50% of the interest on the loan, which was payable in 96 monthly payments (8 years). The clause for which I am trying to understand the potential ramifications reads:
If the Borrower leaves the services of the Company prior to repayment of the full amount of the Loan and the Markup, interest at the prevailing bank rate shall be charged on the total amount of the Loan due from the Borrower from the date on which the loan was granted under the Policy.
The interest rate at the time the loan was made was 12%. So we have been paying down the loan on an amortization schedule based on a rate of 6%. The current interest rate is 14%. The initial sum financed was 270,000, and 34 monthly payments of 3,548 have been made. According to our current amortization schedule, the outstanding principal is 186,149.
We're trying to figure out what we will owe the company if my SO leaves the company at this point.
Should we assume that the amortization schedule would be redrawn with a 14% interest rate and with us having paid 3,548 every month? Or is there some other way of doing it? When I plug in a 14% interest rate and our 3,548 payments, I end up with an outstanding balance of 251,767. Is that correct?
We can't really ask the company because we don't want to tell them SO is planning to quit. The question is anonymous because of financial info. I understand that any answers will be speculative. I am most interested in seeing potential ways that the clause could be interpreted so that I can figure out plausible best and worst case scenarios.
Can you refinance at this time? Would that qualify as paying "the entire amount of the loan and the markup?"
posted by salvia at 5:50 PM on December 7, 2010
posted by salvia at 5:50 PM on December 7, 2010
Taking a wild guess here, you might be able to get your own home loan for the balance you still owe, then use that money for "repayment of the full amount of the loan and the markup" to the company. Basically get a loan from a bank to pay off the loan from the company.
posted by sninctown at 5:54 PM on December 7, 2010
posted by sninctown at 5:54 PM on December 7, 2010
Or refinance BEFORE leaving the services of the company.
posted by gjc at 6:19 PM on December 7, 2010
posted by gjc at 6:19 PM on December 7, 2010
You're potentially talking about thousands and thousands of dollars. Check with a lawyer.
posted by zug at 6:46 PM on December 7, 2010
posted by zug at 6:46 PM on December 7, 2010
Man, that is super ugly. I would be surprised if that was enforceable (then again ... in the US many things are surprising). Refinancing is the logical answer (assuming that your loan allows that ... there may be conditions regarding early or lump sum repayments).
posted by jannw at 4:50 AM on December 8, 2010
posted by jannw at 4:50 AM on December 8, 2010
Man, that is super ugly.
Yes, but it makes sense. The employer is making these interest payments to retain the employee. They don't want the employee to leave. That's the whole point.
in the US many things are surprising
The OP doesn't say, but given the interest rates I don't think this is the US.
Refinancing is the logical answer
If the goal is to keep the employee from leaving or pay back the company if the employee leaves, then refinancing wouldn't help much. It would only help to the extent it allows a longer loan period and lower payments.
But this is all speculation. The OP should really be talking to a qualified attorney in her jurisdiction.
posted by alms at 8:10 AM on December 8, 2010
Yes, but it makes sense. The employer is making these interest payments to retain the employee. They don't want the employee to leave. That's the whole point.
in the US many things are surprising
The OP doesn't say, but given the interest rates I don't think this is the US.
Refinancing is the logical answer
If the goal is to keep the employee from leaving or pay back the company if the employee leaves, then refinancing wouldn't help much. It would only help to the extent it allows a longer loan period and lower payments.
But this is all speculation. The OP should really be talking to a qualified attorney in her jurisdiction.
posted by alms at 8:10 AM on December 8, 2010
Yes, go talk to an attorney. In the meantime, is there a clause about refinancing and/or paying the loan off early? Also, are the terms underlined below defined in the document?
"If the Borrower leaves the services of the Company prior to repayment of the full amount of the Loan and the Markup, interest at the prevailing bank rate shall be charged on the total amount of the Loan due from the Borrower from the date on which the loan was granted under the Policy."
- Does refinancing qualify as repayment of the full ...loan and markup?
- Does prevailing bank rate refer to the current moment? Because interest rates on mortgages now are down around 5%, so if they don't define when it was prevailing, maybe you have an argument that they just have to retroactively calculate it with this low rate, in which case you've already paid it.
posted by salvia at 9:40 AM on December 8, 2010
"If the Borrower leaves the services of the Company prior to repayment of the full amount of the Loan and the Markup, interest at the prevailing bank rate shall be charged on the total amount of the Loan due from the Borrower from the date on which the loan was granted under the Policy."
- Does refinancing qualify as repayment of the full ...loan and markup?
- Does prevailing bank rate refer to the current moment? Because interest rates on mortgages now are down around 5%, so if they don't define when it was prevailing, maybe you have an argument that they just have to retroactively calculate it with this low rate, in which case you've already paid it.
posted by salvia at 9:40 AM on December 8, 2010
interest rates on mortgages now are down around 5%
We don't know whether the OP is in the US. The current interest rates could very well be 14% where she is.
posted by alms at 10:38 AM on December 8, 2010
We don't know whether the OP is in the US. The current interest rates could very well be 14% where she is.
posted by alms at 10:38 AM on December 8, 2010
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Using the numbers you've given, you'd have to pay them 8% interest (compounded) on the 34 months that have passed so far, and then continue paying forward at the 14% rate.
In other words, you're totally shafted.
This is speculative, though. Isn't there some attorney who knows how to read loan agreements you can consult with?
posted by alms at 5:32 PM on December 7, 2010