Buying with Friend 50/50 with Option to make additional lump sum payments

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Sweet Pea

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Hi,

I'm applying for a mortgage at the moment - I'm buying with a friend. I've taken the draft legal agreement posted on this site and am trying to adapt it for my own use.

We are putting the exact same deposit in as we want everything to be strictly 50/50. However, I have a few extra thousand plus an SSIA which matures next year and I would like to lodge these amounts against my own share of the mortgage, thereby bringing my own payments down. If my friend does not make any lump sum payments but I do, her mortgage repayments will stay the same and mine will reduce. So she will not be affected by my extra payments as her repayments will stay the same. The property ownership will still be 50/50. Then when we sell, I will have less of the mortgage to pay off than she will as I will have already paid some of it off with my lump sums, so I will walk away with more, however, she will walk away with the same amount than if I had made no extra payments as her portion of the mortgage will not have changed. Have I got this right?

My question is - is there a mathematical formula for calculating the repayments? I'm not too good in that department and any brain cells I have are being severely tested this week due to all the stress of house buying! Here's what I have if neither of us makes any additional payments:

Apartment Price = €410,000
50/50 deposit (15K each) and ownership so we both own €205,000 of the apartment
Mortgage = €380,00 which is €190,000 each
I pay 190/380ths which is 50%
She pays 190/380ths which is 50%
So for a monthly mortgage of €1,400, we each pay €700

If I decide to pay off €10,000 in a few months time to bring my half of the mortgage down, how is it calculated? I'm getting stuck here! Her payments should not be affected but I can't calculate how :)

Apartment Price = €410,000
50/50 deposit (15K each) and ownership so we both own €205,000 of the apartment
Mortgage = €380,00 which is €190,000 each
Mortgage repayments are €1,400 per month i.e. €700 each
I pay a lump sum of €10,000 which brings my share of the mortgage down to €180,000. Her share is still €190,000

What percent of the mortgage do I pay and what does she pay? The monthly mortgage charge should come down from €1,400 because I have paid money off, but she should still pay €700 and I pay the balance.

Just need some sort of formula to work it out, especially if she decides to make extra payments also and if interest rates go up which will affect the payments.

So any help would be appreciated :)
 
Hi,

I have bought a house with a friend also with a 50/50 ownership. We did a legal binding agreement between us to say everything was 50/50 and included some details if one of us wanted out. I think you paying extra money against the mortgage and she not is a bad idea. You will have no legal standing (as far as I know) that you put say 10k extra in, if it didnt turn out so well. As far as the banks opinion on this is that as long as the money is coming in to pay the mortgage, they dont care who pays it. I would be against this idea of you paying your extra cash in (SSAI), unless you have some of these details done in a legal manner to say you have paid more on the mortgage than she, but that is getting messy and how would you calculate what 10k is in 5 years and I would think a solicitor would not be in favour!!

See legal advice but from my opinion I would say, Dont go there!!!
 
Thanks Mayoman,

I would incorporate this into the legal agreement. I'll see what the solicitor says. In other words, in our legal agreement, I would detail that A has a right to make extra payments and must advise B and vice versa. X Accountant will keep record of who pays what etc. B must accept that A may have paid off more of the mortgage and is entitled to that percentage extra upon the sale of the property etc.
 
Hi Sweet Pea,

Even going on what you are saying there, I just feel it will get messy. I dont know how you will breakdown the payment based on how much extra you have paid. You accountant may have an idea!! Maybe an idea is to leave the payments even between ye, but that you are investing 10,000 into the house and the same interest applies to your 10k as the interest is applied to the mortgage, but this would involve keeping track of the interest rates and doing up the value of your 10k each year. So say in 5 years, ye decide to sell the house, your additional invested money(10k) is worth 11k!!

It may be an idea!!!

If you decide against it there are some banks giving ok rates like rabobank, bank of scotland etc, so maybe stick your cash in there.

Otherwise, I take it off you hand!!!! Good luck with it anyway!!!
 
Hi Sweetpea

Glad to see you using the draft legal agreement. It's been a while since I wrote it, so if you come up with any additions or corrections let me know.

There should be no problem at all in doing what you want to do. The agreement should be flexible enough to allow one person pay off a part of their mortgage quicker than anticipated. It should also allow for one person to remortgage their bit later if needed. In practical terms, around one mortgage in ten falls into arrears at some stage, so if that happens, you will have to allow for variable contributions.

The simplest approach is to ask your mortgage provider to split your mortgage into two accounts. I know that some people who borrow additional money get a second account, so this should be possible. You make your repayments against your bit as it suits you.

If the mortgage provider does not allow this, then you will do the calculation as follows:

Mortgage outstanding when capital payment is made: €376,000 (say)
Share of mortgage each: €188,000

Capital repayment made by Sweet Pea: €10,000

Sweet Pea's share of mortgage: €178,000
Popeye's share: €188,000
Total mortgage €366,000

Sweet Pea's % of mortgage and repayment: 48.6% (178/366)

Revised Monthly repayment: say €1350
Sweet Pea pays: 656.55
Popeye: 693.44

Does that make sense?

Brendan
 
Brendan said:
If the mortgage provider does not allow this, then you will do the calculation as follows:

Mortgage outstanding when capital payment is made: €376,000 (say)
Share of mortgage each: €188,000

Capital repayment made by Sweet Pea: €10,000

Sweet Pea's share of mortgage: €178,000
Popeye's share: €188,000
Total mortgage €366,000

Sweet Pea's % of mortgage and repayment: 48.6% (178/366)

Revised Monthly repayment: say €1350
Sweet Pea pays: 656.55
Popeye: 693.44

Does that make sense?

Brendan
Click to expand...

Is it really that simple Brendan in the real world?
 
Thanks Brendan. Yes that makes sense. Do you know which mortgage providers allow you to make additional payments in order to reduce the monthly repayments rather than the term of the loan? I have been advised that First Active do, but there is a post here today from someone stating that it has to be a minimum of €15K. I'm in a situation where we don't have the full deposit but will have in 3 or 4 months time (we need to pay it in 3 weeks!). What we're planning on doing is getting a 95% mortgage whereby the bank would pay a proportion of the deposit. Then when we're drawing down the mortage in 3 or 4 months time when we have the balance of the deposit, we lodge this to the mortage and bring our payments back down to 88% say. Do you know if this is possible?
 
Sweet Pea said:
First Active do, but there is a post here today from someone stating that it has to be a minimum of €15K.
Click to expand...
Surely other providers dont demand minimums (well not of 15000 anyway)
 
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