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• FIRST POST
• ro2778
• By ro2778 7th Mar 18, 10:37 PM
• 91Posts
• 30Thanks
ro2778
Edit: Trying to figure out a formula to record ongoing unequal mortgage contributions in the form of initial deposit, repayments and overpayments. The formula below still has some flaws

Formula to derive equity due on sale, in a floating share / commensurate share deed
1) Equity due = Sale price - (End balance for total mortgage remaining inc. early repayment charge + costs associated with sale inc., solicitors fees, estate agent fees, housework in response to buyers survey) * Proportion of Equity due to Owner 1/2
2) Proportion of equity due to Owner 1 or 2 = e.g., for Owner 1 = (Percentage of total equity for owner 1 / (percentage of total equity for owner 1 + percentage of total equity for owner 2)) * 100
3) Percentage of total equity for Owner 1/2 = Equity from deposit + Equity from Mortgage 1 + Equity from Mortgage 2 etc... + Equity from Mortgage x
4) Equity from deposit for Owners 1 & 2 = e.g., for Owner 1 = (Owner 1's Deposit / Purchase Price) * 100
5) Equity from mortgage x for Owner 1/2 = e.g., for Owner 1 = (End capital paid by Owner 1 / house purchase price)*100
6) End capital paid e.g., for Owner 1 = Cumulative capital paid during mortgage x i.e., Owner 1's contributions to repayments inc. overpayments - interest calculated each month then summed for duration of Mortgage x

And the element that makes it commensurate or floating is the fact that 6) End capital paid is calculated each month, therefore there is the flexibility for 2 owners to change their contributions each month, so long as between them they are keeping up their repayments of course!

Here is the formula applied to a house bought for 328995, where two owners initially pay equal deposits of 7.5% each (£24,677.50) and share the mortgage. But then after just one year owner number 2 stops paying the mortgage and owner number 1 takes up all the flack.

14 years in total and 4 mortgages later the mortgage is paid off:

for simplicity the model doesn't change the value of the house price but the facility to change this exists on the spreadsheet

.................Total Equity | Equity O1:O2 | Equity Due
Owner 1 | 91.05 ........|..... 91.05% ....|..£299,535
Owner 2 | 8.95 ........|........8.95% .....|..£29,460

credit: all the mortgage values were extracted from mortgage schedule calculator spreadsheet
Originally posted by ro2778
Last edited by ro2778; 10-03-2018 at 8:49 AM. Reason: for brevity
Page 3
• getmore4less
• 10th Mar 18, 10:56 AM
• 31,643 Posts
• 18,954 Thanks
getmore4less
The 1st example is broadly correct:

if one of you put down £20,000 and the other £10,000, but you split the mortgage equally, on sale and after clearing the mortgage debt, person one would get their £20,000 back, person two, their £10,000 with anything left over being split down the middle.:

However what it should say it that the £20,000 and £10,000 each buy a %age share, then on sale each gets the %age share their deposit bought based on the sale price and what's left less the mortgage is split 50/50.
Originally posted by Tom99
That's is what you call the "get your money back" model.

This is the equivalent to each lending the other party 1/2 their deposit on an interest only basis.

if you split the mortgage equally then you own 50:50 with a side debt of the difference.

As long as you understand that's what you are doing it is a reasonable approach.
• ro2778
• By ro2778 10th Mar 18, 4:27 PM
• 91 Posts
• 30 Thanks
ro2778
I still don't think its right as you are basing Owner 2's equity on the amount of capital mortgage they have repaid rather than the total mortgage they are supporting.

Put in an unrealistic sale price of £657,990 after one month (100% increase). You would expect Owner 1 to get back about £328,995 and Owner 2 about £328,995 less mortgage of £164,054 so £164,941. But your formula would only give owner 2 £1,329.

Originally posted by Tom99
I was thinking about this again but in reverse. Let’s say the house costs 100k and A puts in 50k deposit and B takes out a 50k mortgage. Then on day 2 they sell for 50k because the property value crashed. The mortgage is repaid first and then A loses all their money whereas B loses nothing. By your logic A should get 25k and B should pay 25k but where does B get that 25k? So the reason A gets all the money, if the house price doubles on day 2 is because A is taking all the risk. I can therefore still see an argument for the equation in this spreadsheet even though at first it seems odd.
• Tom99
• By Tom99 10th Mar 18, 6:14 PM
• 1,637 Posts
• 1,079 Thanks
Tom99
I was thinking about this again but in reverse. Let’s say the house costs 100k and A puts in 50k deposit and B takes out a 50k mortgage. Then on day 2 they sell for 50k because the property value crashed. The mortgage is repaid first and then A loses all their money whereas B loses nothing. By your logic A should get 25k and B should pay 25k but where does B get that 25k? So the reason A gets all the money, if the house price doubles on day 2 is because A is taking all the risk. I can therefore still see an argument for the equation in this spreadsheet even though at first it seems odd.
Originally posted by ro2778
Yes A is acting as guarantor to B but guarantors do not normally expect to acquire any equity.
• steampowered
• 10th Mar 18, 6:27 PM
• 2,313 Posts
• 2,204 Thanks
steampowered
Let!!!8217;s say the house costs 100k and A puts in 50k deposit and B takes out a 50k mortgage. Then on day 2 they sell for 50k because the property value crashed. The mortgage is repaid first and then A loses all their money whereas B loses nothing. By your logic A should get 25k and B should pay 25k but where does B get that 25k? So the reason A gets all the money, if the house price doubles on day 2 is because A is taking all the risk. I can therefore still see an argument for the equation in this spreadsheet even though at first it seems odd.
Originally posted by ro2778
The wording in bold is why your example falls down.

It is impossible for B to be the only person who takes out the mortgage.

Mortgages are joint and several debts. No bank will lend against a 50% interest in a property.

The mortgage will have to be in joint names. The mortgage will be A's debt just as much as it is B's debt.

Of course, if the property is sold on day 2, all of the equity will go to person A since nobody has made any mortgage payments.

But if the property is sold after a couple of months, then unless there is a written agreement to the contrary, the law splits the equity in the property taking into account both A's contribution to the deposit and the relative mortgage repayments made by A and B.
Last edited by steampowered; 10-03-2018 at 6:30 PM.
• steampowered
• 10th Mar 18, 6:29 PM
• 2,313 Posts
• 2,204 Thanks
steampowered
Yes A is acting as guarantor to B but guarantors do not normally expect to acquire any equity.
Originally posted by Tom99
Banks will always expect a mortgage to be in joint names. The mortgage will be secured in full against the entire property.

It simply not possible to have a situation where A is merely a "guarantor" of the mortgage.

A will be a named party on the mortgage. The debt will be A's debt and will be secured against A's share of the property, just as much as it is B's debt secured against B's share of the property.

You could in theory have an agreement between A and B under which B agrees to fund all of the mortgage repayments, but that agreement would be of no concern to the bank.
• getmore4less
• 10th Mar 18, 9:35 PM
• 31,643 Posts
• 18,954 Thanks
getmore4less
I was thinking about this again but in reverse. Let’s say the house costs 100k and A puts in 50k deposit and B takes out a 50k mortgage. Then on day 2 they sell for 50k because the property value crashed. The mortgage is repaid first and then A loses all their money whereas B loses nothing. By your logic A should get 25k and B should pay 25k but where does B get that 25k? So the reason A gets all the money, if the house price doubles on day 2 is because A is taking all the risk. I can therefore still see an argument for the equation in this spreadsheet even though at first it seems odd.
Originally posted by ro2778
You end up in a situation where B owes A £25k.
even if you do it with a loan and both pay the joint mortgage you end up in the same situation.
• Tom99
• By Tom99 11th Mar 18, 1:08 AM
• 1,637 Posts
• 1,079 Thanks
Tom99
You could in theory have an agreement between A and B under which B agrees to fund all of the mortgage repayments, but that agreement would be of no concern to the bank.
Originally posted by steampowered
That would be the Deed of Trust which would say B pays all mortgage each month and is responsible for redeeming it on sale.

So the net effect of mortgage + DOT is that A is guaranteeing B will pay up and as getmore4less says above B will owe A £25k just like when any other guarantor has had to pay out.
• getmore4less
• 11th Mar 18, 8:22 AM
• 31,643 Posts
• 18,954 Thanks
getmore4less
I was thinking about this again but in reverse. Let’s say the house costs 100k and A puts in 50k deposit and B takes out a 50k mortgage. Then on day 2 they sell for 50k because the property value crashed. The mortgage is repaid first and then A loses all their money whereas B loses nothing. By your logic A should get 25k and B should pay 25k but where does B get that 25k? So the reason A gets all the money, if the house price doubles on day 2 is because A is taking all the risk. I can therefore still see an argument for the equation in this spreadsheet even though at first it seems odd.
Originally posted by ro2778
Remember that the starting point includes all costs to buy and the end is net proceeds from sale.

That is likely to be a minimum of £1k buying and 1% selling.

If you use the B gets/loses nothing if they paid nothing servicing their debt model then A(pays all/more deposit/costs) takes the hit on all/more costs day one.