Mortgage overpayment conundrum

amnblog

Based on what they agreed originally if they sold today at £417K and cleared £237k after the mortgage, they should get back £159K and £78K respectively based on 67% and 33% shares?

Does that make sense?

getmore4less

amnblog wrote: »

Based on what they agreed originally if they sold today at £417K and cleared £237k after the mortgage, they should get back £159K and £78K respectively based on 67% and 33% shares?

Does that make sense?

Clearly not as that's the original purchase scenario and if they sold the next day as they put in £190k and £47k they should get that back.

The original agreement was, from what I can see, clearly based on the equity including the debt being serviced.

Split the sale proceeds by those % and each pay off 1/2 the outstanding mortgage.

getmore4less

Many people find it very difficult to detach the equity from the debt when there is a mortgage.

that is essential for doing proper % ownership shares based calculations

Windsorcastle

getmore4less wrote: »

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)

Yes, this is how we worked out our original percentage shares - the amount of deposit each of us put in as a % of the purchase price plus half the mortgage.

Windsorcastle

getmore4less wrote: »

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

Thanks. This is the bit I don't understand - how does giving £20k to my partner increase me equity share?

The main point is that I have £20k to play with, my partner has nothing, and we want to reduce the mortgage debt.

So if I gave my partner £10k and then we paid £10k each off the mortgage, how would that change things? Aren't I just paying my partner's debt for no benefit to myself??

theoretica

Windsorcastle wrote: »

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.
...
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.

The way you set up the division your partner put in 4 times as much as you to start with, but only got twice the share of the house - because of the way you took the mortgage into account. Using the same calculation you would need to pay £143k off the mortgage to get up from 33% to 50/50 ownership - so £20k will only bring you a small percentage benefit. But the extra £143k your partner put in at the start only raised their share by 17%

What you are perhaps forgetting is that for every 1% you increase your share by, you are decreasing your partner's share by 1%, so making 2% difference. Is this where your 10k/20k confusion comes from?

exiled_red

I think that what you should do is firstly get the property valued so that you know how much it is worth now and based on this valuation work out how much share £10k would buy you. You then give this £10k to your partner for an increased share of the property. At this point you have £10k and they have £10k, if you then both pool this money to pay the £20k off the mortgage, you have the increased share in the property and you both continue to get to keep the share of the mortgage the same.

The alternative if your partner wants cash and is willing to sell you a 20k share of the property (but doesn't want to pay the cash off the mortgage) is buy a 20k stake from them, and keep paying the mortgage repayments you both pay at the moment. It is important that your partner doesn't use the money to pay off the mortgage otherwise the two of you are back at the start but the other way around

Windsorcastle

theoretica wrote: »

What you are perhaps forgetting is that for every 1% you increase your share by, you are decreasing your partner's share by 1%, so making 2% difference. Is this where your 10k/20k confusion comes from?

Aha!! Yes, good point. I was overlooking that.

Thanks very much for taking the time to post a reply.

Windsorcastle

exiled_red wrote: »

I think that what you should do is firstly get the property valued so that you know how much it is worth now and based on this valuation work out how much share £10k would buy you. You then give this £10k to your partner for an increased share of the property. At this point you have £10k and they have £10k, if you then both pool this money to pay the £20k off the mortgage, you have the increased share in the property and you both continue to get to keep the share of the mortgage the same.

The alternative if your partner wants cash and is willing to sell you a 20k share of the property (but doesn't want to pay the cash off the mortgage) is buy a 20k stake from them, and keep paying the mortgage repayments you both pay at the moment. It is important that your partner doesn't use the money to pay off the mortgage otherwise the two of you are back at the start but the other way around

Thanks very much - yes, that all makes sense!

getmore4less

Windsorcastle wrote: »

Yes, this is how we worked out our original percentage shares - the amount of deposit each of us put in as a % of the purchase price plus half the mortgage.

see calculation previously

pretend you had the £20k at the start and add £20k to your depoit and reduce the mortgage by £20k, you then get 10k more equity.

simple numbers to save me looking for your numbers again

£200k house

£70k and £30k deposits 100k mortgage

shares are £120k and £80k

£70k and £50k deposits £80k mortgage

shares £110k and £90k

it's that simple.

if you pay £20k off the mortgage you only get £10k more equity.

(adjusted for house price we can doo that if needed)