commensurate share deed

ro2778

I agree it would be my preference to treat capital repaid and interest paid as the same. Taking the example above of shared ownership, where person 1 pays 50k in cash and person 2 takes out a 50k mortgage. I think it’s unethical for person 1 to live in the house they can’t afford on their own and not have to take into account the financial contribution person 2 makes towards their mortgage interest. Although this isn’t relevant to us because we will take out a joint mortgage.

getmore4less

steampowered wrote: »

There is no legal distinction between money paid as interest and money paid as capital on a mortgage.

Co-owners are able to agree how their ownership is split using whatever mechanic they would like. This can all be set out in a 'tenancy in common agreement' or whatever the Op wants to call it. Ownership shares do not have to be linked to the amount paid on day one.

You can agree anything you want but if one person puts up their 50% as cash and the other borrows 50%(does not matter how) then to own anything other than 50% going forward is bonkers.


if you start counting interest towards equity then the higher the rate the more the borrower gets to own, no incentive to pay off capital just stay interests only and slowly take over all the equity.

You borrow to buy 50% of a house that's what you own just because you have to pay interest does not change that.
if you bought 100% that does not get bigger because you pay interest, neither should the 50% you bought.

getmore4less

ro2778 wrote: »

I agree it would be my preference to treat capital repaid and interest paid as the same. Taking the example above of shared ownership, where person 1 pays 50k in cash and person 2 takes out a 50k mortgage. I think it’s unethical for person 1 to live in the house they can’t afford on their own and not have to take into account the financial contribution person 2 makes towards their mortgage interest. Although this isn’t relevant to us because we will take out a joint mortgage.

Persons 2 contribution is the capital borrowed, the interest is because they don't have the capital and have to borrow the money. to sugest that 1 should contribute to the interest without 2 giving back on the capital injection from 1 is not equitble.

One solution is person 1 lends person 2 £25k towards their deposit, equal £25k deposits, you have a joint mortgage for the other £50k.

2 owes 1 £25k on terms as agreed.

You have a much bigger problem if part way through the who pays what changes.

the way you are trying to tie equity debt and payments just breaks down when you do an analysis of the algorithm for all combination.

ro2778

I understand so the formula has two parts
(1) deposit and overpayments buy equity as per the original value of the house
(2) remaining equity is determined once remaining mortgage is repaid based on the mortgage repayments for each party during ownership

edit: although thinking about (2) I guess the equity from mortgage repayments will have to be calculated each time the house is remortgaged to account for changing interest rates so...

1. Initial house value determines equity from deposits and mortgage overpayments
2. Equity gained during first mortgage* divided by ratio of mortgage repayments
3. Equity of next mortgage divided by ratio of mortgage repayments
etc... either until sale or mortgage repaid

* a mortgage is treated as a period of fixed interest, so when the interest rate changes that is for the purposes of calculation a new mortgage

steampowered

getmore4less wrote: »

You can agree anything you want but if one person puts up their 50% as cash and the other borrows 50%(does not matter how) then to own anything other than 50% going forward is bonkers.

Imagine a situation where a couple put down a 10% deposit on a £500k property.

Each Partner contributes half of the deposit. But Partner 1 makes all of the mortgage repayments.

Under your calculations, Partner 1 would have paid £475k (plus mortgage interest) and Partner 2 would have paid £25k.

Yet under your model both Partners own 50% each!

if you start counting interest towards equity then the higher the rate the more the borrower gets to own, no incentive to pay off capital just stay interests only and slowly take over all the equity.

If the rate is higher, the borrower would have had to pay more money. So it seems perfectly fair for that borrower to get a higher share of the property!!!

I don't really understand why you are distinguishing between capital and interest. £10 is £10. If the £10 goes towards the mortgage, I think it should be credited!!!!

getmore4less

Total wrong understanding of how equity and serving debt works

Overpayments don't buy equity they reduce debt.

getmore4less

the example being used was 100k with 50k deposit and 50k mortgage where one pays all of it.

steampowered wrote: »

Imagine a situation where a couple put down a 10% deposit on a £500k property.

the deposits buy 10% 5% each

Each Partner contributes half of the deposit. But Partner 1 makes all of the mortgage repayments.

1 owns 5% the other paying the mortgage owns 95%

Under your calculations, Partner 1 would have paid £475k (plus mortgage interest) and Partner 2 would have paid £25k.

Yet under your model both Partners own 50% each!

see above, it does not matter what the person pays on the mortgage they own 95% and the mortgage gets paid off from that share if sold.


If the rate is higher, the borrower would have had to pay more money. So it seems perfectly fair for that borrower to get a higher share of the property!!!

I don't really understand why you are distinguishing between capital and interest. £10 is £10. If the £10 goes towards the mortgage, I think it should be credited!!!!

They are very different £10s one buys an asset the other is rent on the money to buy an asset.

if I buy 3 apples for £1 and you use a payday loan to buy another 3 apples for a £1 and have to pay back £2 we each own 3 apples.

if we pooled the money to buy 6 apples why do you now own 4 apples and I only own 2 apples?

ro2778

This is quite frustrating...

Should I just think about it like this:
1) Deposit = % equity
2) Mortgage debt on sale 2a) a certain % is paid back to the bank if not fully repaid
2b) a certain % has been paid off by the 2 owners and this becomes equity such that

Total Equity = Deposit Equity + Mortgage outstanding (repaid on sale) + Mortgage paid down (during ownership) + Capital gain / loss: therefore...

Owners' equity = Total equity - Mortgage outstanding (repaid on sale) therefore...
Owners' equity = Deposit Equity + Mortgage paid down (during ownership) + Capital gain / loss

3) Deposit Equity is calculated at the start
4) Mortgage paid down for each owner needs to take account of mortgage repayments, lump sum overpayments and interest paid (although not quite sure how)
5) Capital gain / loss is what remains and should be divided between owners based on their overall contributions to both deposit and servicing the mortgage based on the original house value?

getmore4less

ro2778 wrote: »

This is quite frustrating...

Should I just think about it like this:
1) Deposit = % equity

that money buys a bit of the property x% and y% if there are 2 of you

that % never changes
2) Mortgage debt on sale 2a) a certain % is paid back to the bank if not fully repaid

The mortgage buys the rest(100%-x%-y%) what ever is left of the mortgage on sale all come out of that share not the full 100%


2b) a certain % has been paid off by the 2 owners and this becomes equity such that

That's the free equity from which the distribution comes but does not represent the share owned

Total Equity = Deposit Equity + Mortgage outstanding (repaid on sale) + Mortgage paid down (during ownership) + Capital gain / loss: therefore...

Owners' equity = Total equity - Mortgage outstanding (repaid on sale) therefore...
Owners' equity = Deposit Equity + Mortgage paid down (during ownership) + Capital gain / loss

3) Deposit Equity is calculated at the start

yep as above
4) Mortgage paid down for each owner needs to take account of mortgage repayments, lump sum overpayments and interest paid (although not quite sure how)

You ignore the interest it is not relevant to the equity ownership or the debt due

5) Capital gain / loss is what remains and should be divided between owners based on their overall contributions to both deposit and servicing the mortgage based on the original house value?

Forget that the mortgage is secured on the property and gets first dibs on the cash that is not how you descibe the ownership and share of the debt.

try this both parties getting the borrowings from the banks of mum&dad.

If they borrowed 1/2 the cash each(no deposits needed)
Clearly they own 1/2 each and when they sell they get 1/2 each and pay off their debt s from that.

parents for one says you can have the money interest free
the others persons parents others wants 5% interest.

You are saying the one paying 5% interest owns more of the house.

WHY?

lets go one stage further parent one wants no interest or payments
so they pay nothing,

Then according to 5. As soon as person 2 pays their first £1 they own 100% of the place.

changing the lender(to a bank or the parents securing their loans) or using your own cash makes no difference you own the bits you pay for with cash or debt. what/how you pay for your debt makes no difference to what you own just what you owe on the money you borrowed.

do the apple example with houses
you buy 2 houses for the same amount one pays cash one borrows the money clearly they own 100% of their own houses.

Combine resources too get a bigger house and suddenly the one borrowing money owns more than 1/2.

Tom99

getmore4less wrote: »

do the apple example with houses
you buy 2 houses for the same amount one pays cash one borrows the money clearly they own 100% of their own houses.

Combine resources too get a bigger house and suddenly the one borrowing money owns more than 1/2.

Keep it up, you will get there in the end and I am enjoying you examples!