Mortgage overpayment conundrum

Windsorcastle

I've been puzzling over this all week and cannot get the figures to add up. Any help much appreciated.


I bought a property a year ago with my partner which we own as tenants in common, as we contributed unequal deposits.


Purchase price:


£417k


Partner put in £190k deposit
I put in £47k deposit


Joint mortgage of £180k for remainder.


We agreed that this gave my partner a 67% share and me a 33% share.


I have just received some money from my late mother so now want to make a lump sum overpayment of 20k. My partner doesn't have funds to make any overpayment.


However, when I try to work out how this affects the percentages, the increased share it gives me would only equate to about 10k of the original purchase price.


I think this is because my 20k would effectively be paying off 10k of my own mortgage debt AND 10k of my partner's.


So can any mortgage brains out there suggest how I do this in a fair way, but which obviously protects my own interests as there's no point in me sinking money into this if I won't get any benefit in way of increasing my equity share??


Thanks in advance!!

getmore4less

The easy way to do it is to just reduce your share of the debt by £20k and adjust the mortgage payments keeping the equity shares as they are.

if you are paying the mortgage 50:50 then the shares should have been.
(190+90):(47+90) which comes to 67.15:32.85

Close enough to what you have.

what you could have done is split the mortgage unequally to give you more equity if you could have afforded the payment.


To do the new equity with £20k injection there are 2 ways you can do this keep the mortgage the same and you buy £20k worth off your partner(giving them the £20k)

new deposits/mortgage become 67k:£170k/£180k

but you are back where you started but the other way round.

or you buy £10k off the partner giving them £10k and both pay £10k each off the mortgage.

you are still up but only buying £10k worth of equity and reducing the debt by £10k. if you want more equity then you need to give more money to the partner.

what the 10/20k buys is dependent on current value not purchase price.

Once bought the equity/debt are no longer linked

amnblog

There is £237K of equity (£417 - 180).

You are putting in £20,000 which takes the equity to £257K.

Your partners share of the equity says at 67% of £237K = £158,790

Yours rises to the balance = £98,210

You now own 38% and 62% of the new equity respectively.

Windsorcastle

amnblog wrote: »

There is £237K of equity (£417 - 180).

You are putting in £20,000 which takes the equity to £257K.

Your partners share of the equity says at 67% of £237K = £158,790

Yours rises to the balance = £98,210

You now own 38% and 62% of the new equity respectively.

Thankyou for your time, amnblog. Do those percentages just apply to the equity or would it mean those are our shares of the property overall? Under your calculations, my share increases by 5% which equates to more or less £20k of the original purchase price, which sounds fair to me. But 5% of the equity would be a lot less than my £20k, if I'm thinking this through properly..?

Would this mean that when we come to sell, we each take out exactly what we put in at the start and then split the equity 38/62? Would I be out of pocket that way?

Sorry to be not quite grasping it - I want to be very clear on the figures before I discuss with my partner, to avoid any argument!!

getmore4less

if your initial equity calc was based on deposit + 1/2 the mortgage which it looks like it was then the new calc would be the same (based on initial prices to keep it simple)

just do it as if you had £20k more deposit and a £20k smaller mortgage
deposits + 1/2 the mortgage
190+80 : 67+80 64.75% : 35.25%

remember when you sell you split the proceeds BEFORE paying off 1/2 the mortgage each your %s are based on full value not free equity.

throw 20k of the mortgage and it just works.

if you want the full £20k worth of equity you need to give the money to the partner not pay it of the mortgage


if you do the take you money back and split the rest model you have done the initial equity wrong






.

getmore4less

amnblog wrote: »

There is £237K of equity (£417 - 180).

You are putting in £20,000 which takes the equity to £257K.

Your partners share of the equity says at 67% of £237K = £158,790

Yours rises to the balance = £98,210

You now own 38% and 62% of the new equity respectively.

algorithms have to work for all values

if the op added £143k(new equity £280k)

taking them to £190k invested each

67% of £237 Is £158,790 op then goes to 121210

56.7 : 43.3 should be 50:50

getmore4less

What is your current agreement that is what will drive your options.

How did you get to the equity split you have?
how have you described how you get money out on a sale

getmore4less

another way to do it is with a virtual sell and buy.

use your agreement to convert the property to cash(on paper)

you will have 3 numbers yours, others, mortgage.

add £20k to your money and then do a purchase on paper based on your agreement.

The critical bit is how you worked out your equity on purchase and your proceeds from sale.

amnblog

Windsorcastle wrote: »

Thankyou for your time, amnblog. Do those percentages just apply to the equity or would it mean those are our shares of the property overall? Under your calculations, my share increases by 5% which equates to more or less £20k of the original purchase price, which sounds fair to me. But 5% of the equity would be a lot less than my £20k, if I'm thinking this through properly..?

Would this mean that when we come to sell, we each take out exactly what we put in at the start and then split the equity 38/62? Would I be out of pocket that way?

Sorry to be not quite grasping it - I want to be very clear on the figures before I discuss with my partner, to avoid any argument!!

The pair of you don't 'own' the whole property value.

You seem to be sharing the mortgage debt 50/50 so you should concern yourselves with value less mortgage debt = equity.

amnblog

Windsorcastle wrote: »

Would this mean that when we come to sell, we each take out exactly what we put in at the start and then split the equity 38/62? Would I be out of pocket that way

That would depend on whether you consider your share of the growth should be based on initial cash in only, or shares should be adjusted if more cash goes in.

If the later you should recalculate your shares based on market value as each lump of cash does in.

Your cash today reduces mortgage costs today and that should be reflected some how.

getmore4less

amnblog wrote: »

The pair of you don't 'own' the whole property value.

You seem to be sharing the mortgage debt 50/50 so you should concern yourselves with value less mortgage debt = equity.

That's incorrect for proper equity shares.

The debt buys the equity and how much debt you service contributes/determines how much of the equity you are responsible for.

Just because they have the debt as a mortgage rather than say the bank of mum and dad makes no difference to the equitable shares owned by them

if one had put up 1/2 the cash and the other their 1/2 by 1/4 cash and a 1/4 by servicing debt they would own 50:50.

edit: another simple example to show how flawed that sort of algorithm is

if one put in £1 that person has 100% of the free equity on interest only they get all the increase in value of the property.

if they got 100% mortgage so they have no equity, how does equity from increase in value get split?