How do repayments work with shared mortgages?

vintage_beanpole

Hello,

I was wondering, if two friends A and B have a mortgage together - A put in 40% equity and B put in 60% equity. How would it work if A wanted to make early repayments (presuming there's no early repayment charge)?

As A is repaying early but B is not, does that mean that B takes the benefit of A's repayment as the amount on which interest is due is reduced by A's extra efforts.

Is there anyway to calculate this? Or is it not really anything of concern?

Has anyone come across this?

Any help appreciated! Thank you x

stewil18

Its tricky because even tho A would be overpaying and, yes, it would be a benefit to B as the mortgage would shorten, but when would they want to stop paying? Are they looking to leave B with a portion of the mortgage at the end or sell up early?

Surely the easiest way would be to readjust the equity in terms of what was paid over the length of the mortgage paid.

vintage_beanpole

Many thanks Stewil, I think I might have been a tad confusing on the 'equity' front. I think the idea is that they have 50/50 equity. It's just that A put in about 30% of the deposit and B the remaining 70%. So they are looking at it as though A has a bigger mortgage that B (albeit the same mortgage). But they have the same equity.

But yes, I see your point as to what happens when A has paid off their share of the mortgage through overpayment, but B has not...

I am confused to say the least.

DominicJ_2

To be honest, they dont.
You will have to come up with a system, or be a lot more specific about the details.

vintage_beanpole

Many thanks Dominic,

They don't what?

What sort of details?

getmore4less

OK it is easiest to think of the debt as seperate from the equity.

if the equity starting point is 50:50 then you own 1/2 the house each.

split the mortgage to make this happen.


eg: £100k house
deposits
A £10k B £20k
mortgage A £40k B £30k

Now forget the house(ajusting equity is nightmare) and focus on the debt.

if A paid 40/70th and B paid 30/70th it would just work.

If you keep the payments at those % even if you overpay it will still just work.

if A or B want to pay more than their % then you have to get a ballance, pay the extra and then rework the % of the normal payment that each now owe

If you don't have access to the mortgage ballance either through statements or on line it might be easier to just do one extra payment at the amnual mortgage statement time.

Remember any capital investement into the house are 50:50.

Also remember allthough you are technicaly only servicing part of the mortgage legaly you are both resonsible for all the debt.


(equity adjustments require an agreed valuation, debt does not change in value making it a lot easier to deal with)

edit : forgot the sale senario.

You split 50:50 and pay of your outstanding share of the debt.

ther is another senarios where you have the mortgage 50:50 and the biger deposit lends money to the other to make the deposits the same and have a side agreement for that part.