Options on settling a mortgage

james916

Hi

I would like to find out the options to the following scenario.

Persons A and B buy a place together and put £30,000 deposit down each against a £180,000 property leaving a mortgage of £120,000. They then each contribute an additional £15,000 between them over the next 2 years so have therefore each contributed a total of £37,500. The property is now worth approximately £160,000. Person A wishes to either sell the property (which I presume would incur a loss) or buy out person B.

What are the options available to person A given the above. What figures might be involved if person A wanted to re-mortgage with person C, retain the property and pay off person B?

Many thanks

James

scotty1971

ask person D,they may be able to help

james916

Does anyone else have any thoughts on this or is this question not suitable for this forum either in its content or how it is phrased?

Thanks

James

Robert_Sterling_3

This is a very sensible question to ask on this website and in this forum. Do not be put off by the mildly amusing post about person D.
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You own equal shares. The house is worth, we assume, £160,000. If one of you is to buy the other out of their share and take over the remaining mortgage then you need to find out what the outstanding balance is on the day of buy out.

Then do a sum. Value of property at that time-Amount owing at that time = Equity.

This might turn out to be something like

£160,000 - £118,000 = £42,000

So you would get the figure £21,000 as the buy out price.

However if this is what you offer the other person it is also what they might offer you.

If you both want to do the buyout you could start the bidding at £21,000 and then see who would bid higher.

Another consideration is that whoever does the buy out will have no estate agents fees etc. So perhaps £23,000 might be considered a reasonable offer.

These suggestions could be refined if I knew the current outstanding balance of your mortgage.

Best wishes to both of you. Try to keep financial things amicable.

james916

Thanks for the reply Robert,

Robert_Sterling wrote: »

Value of property at that time-Amount owing at that time = Equity.
This might turn out to be something like
£160,000 - £118,000 = £42,000

In my original post I stated that approx. £15,000 had been paid on the mortgage. Did you only subtract £2,000 from the mortgage as the remaining £13,000 would be interest charges?

So as the value of the property falls, so does the buy-out value. What happens in a negative equity situation? Does the person wishing to retain the property need to acquire funds from the other person in order to settle the original mortgage as the value of the property alone cannot do this?

Many thanks

James

beecher

Surely the first thing to do is to work out if either Person A and C can take on the mortgage? The lender will treat it as a new application - do they have the salary/deposit necessary?

james916

beecher wrote: »

Surely the first thing to do is to work out if either Person A and C can take on the mortgage? The lender will treat it as a new application - do they have the salary/deposit necessary?

Would I be correct in saying that the remaining equity would act as a deposit? So in the example given by Robert_Sterling this would leave a £19,000 deposit. Or the 'take the money and run' scenario would leave each person with £21,000 cash in which case the question of being able to hold the mortgage is invalid.

Robert_Sterling_3

james916 wrote: »

Thanks for the reply Robert,
In my original post I stated that approx. £15,000 had been paid on the mortgage. Did you only subtract £2,000 from the mortgage as the remaining £13,000 would be interest charges?

So as the value of the property falls, so does the buy-out value. What happens in a negative equity situation? Does the person wishing to retain the property need to acquire funds from the other person in order to settle the original mortgage as the value of the property alone cannot do this?

I leave aside for the present the worst case scanario in which there is negative equity.

Perhaps I should have factor in the reducing value of the property and suggested a buying price well below hal of the equity existing at present.

Many thanks

James

The answer to your first question is yes. In the early years of a repayment mortgage most of the monthly payment is interest. Your lending will be able to tell you how much of the debt remains.

If the value of the property drops another £20,000 then you should both be £10,000 worse off. Your partner would get £10,000 less from you but whilst saving £10,000 you would aquire an asset which is worth £20,000 less.