Ask Paul: Can I use my teen’s $30k for mortgage and pay her interest?

Dear Paul,

My 19-year-old daughter is living at home and studying at university.

Over the past few years she has managed to save around $30,000.

With term deposits being so low (around 1.85%), should I put her money against my mortgage and pay her just over 3% (the mortgage rate) a year?

I can redraw the money if and when required. What are your thoughts? - Greg

Your daughter has done really well, Greg - saving while at uni is not easy. I recall my part-time job earnings back then being converted into beer!

In principle, I do like the family use of debts and assets, but there is a caveat, which is that any "in the family" arrangements should be well understood and clearly documented.

I am really at a bit of a loss as what else to suggest to a 19-year-old. It is too early to consider property - she will not be likely to have the cash flow or want the millstone of a mortgage at this stage.

Shares are fine, but I really think that needs to be a minimum seven-year decision. Given I think young people need flexibility, I suspect your plan is about the best for now.

This money may be needed for travel, a future deposit or a business start-up. So for now I think the best return she can get, with liquidity, is the way to go.

Get stories like this in our newsletters.