Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Sharing a home and a mortgage
Old 04-26-2008, 05:10 PM   #1
Recycles dryer sheets
 
Join Date: Mar 2007
Posts: 149
Sharing a home and a mortgage

I am trustee for a dear friend’s estate and have a question for the forum.

Mary is in her early 80's and fortunately in very good health. She owns and shares a home with Joe, her S.O. They are not married, but have lived together for many years, and keep their finances separate with very good written records. They’ve taken title to the home as tenants in common 50/50 and will each leave their share of the home to their children from previous marriages.

Last night we were discussing their finances over cocktails. They are wondering how they will calculate their shares of the proceeds of the sale of their principal residence when the time comes. They both have accountants but we are all enjoying the challenge of working this out. We are ok till we get to the last part - then we’re stumped. :confused::confused:

I know there are some math wizards on this forum and we sure would appreciate any help. (The figures are hypothetical to make it easier to calculate.)


They have a 30 year fixed rate mortgage which was taken out 5 years ago. The balance is now $300,000 with a monthly payment of $1800 principal & interest only.

They share the property taxes, insurance and costs of running and maintaining the home 50/50.

Currently Joe owes $160,000 & Mary owes $140,000 & they have agreed that the share of the monthly mortgage payment each pays will reflect that difference.

Accordingly, Joe pays 160,000 divided by 300,000 multiplied by 1800 = $960 (ratio = .533)
Mary pays 140,000 divided by 300,000 multiplied by 1800 = $840 (ratio = .466)

Here is the complication and the question:

Joe has some extra cash and wants to pay off the entire $300,000 mortgage with his money and take a 10 year fixed rate equity loan for $100,000 on which he will make the payments. ( So, instead of owing $160,000, he will owe $100,000).

Meanwhile, Mary will continue paying on the $140,000 she owes, but instead of paying the mortgage holder, will pay Joe instead.

When the time comes to sell, how do they calculate the amounts each will receive from the sale proceeds? We’re guessing they’ll receive about $700,000 after all expenses of sale. (We have an interest amortization table - if that helps.) Thanks!!!
__________________

__________________
outtarentals is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 04-26-2008, 05:18 PM   #2
Moderator
Ronstar's Avatar
 
Join Date: Aug 2007
Location: A little ways southwest of Chicago
Posts: 9,369
I'm a partner in a business with a buy-sell agreement that specifies what my company stock is worth should I die during a fiscal year. The agreement also specifies the terms of payment to my heirs. It seems that Joe and Mary could (and maybe should) enter into such an agreement if such a thing is legal in their real estate deal. I would check with a lawyer to see what advice he/she has.
__________________

__________________
Ronstar is offline   Reply With Quote
Old 04-26-2008, 05:22 PM   #3
Thinks s/he gets paid by the post
2B's Avatar
 
Join Date: Mar 2006
Location: Houston
Posts: 4,330
They must live in California. Nowhere else on earth do things get this complicated. My suggestion is to simplify. If Joe pays off the place and pays Mary for her equity, he could give her the right to live in the home at a given monthly rent for however long she is able (plus property taxes). The home would then revert to his heirs. Mary could do the same.

Unfortunately, any share property would immediately trigger heir-wars with charges the other one was profiting from the death of someone that had left their property to them.

Mary and Joe could mutually leave their interest in the property to the other party at a specified price (2 or 3 appraisals?) and that would determine payment. The non-dying person would then have a choice of paying or moving.
__________________
The object of life is not to be on the side of the majority, but to escape finding oneself in the ranks of the insane -- Marcus Aurelius
2B is offline   Reply With Quote
Old 04-26-2008, 05:47 PM   #4
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
clifp's Avatar
 
Join Date: Oct 2006
Posts: 7,451
With the editorial aside that this seems overly complicated to me...

Assuming that Mary's payments are unchanged.
They/she is starting year 6 of a 30 year amortization schedule. Let say she dies in 10 years so we are 15 year into paying off the mortgage. Using the original mortgage schedule her balance if no refinancing was done would be 140K/300K times the remaining balance.

That is the amount her estate owes Joe. If Joe dies first it is also the amount Mary owes Joe's estate. Essentially her liability which is a 14/30 share of the mortgage is transfered from the bank to Joe.

My mom and her SO went through a similar issues. Although most of their agreement involved with how long the remaining partner got to stay in the place.
__________________
clifp is offline   Reply With Quote
Old 04-26-2008, 05:54 PM   #5
Full time employment: Posting here.
 
Join Date: Apr 2004
Posts: 802
Why on earth would 80 year olds have a mortgage??:confused:
__________________
Zipper is offline   Reply With Quote
Old 04-26-2008, 06:18 PM   #6
Moderator Emeritus
Bestwifeever's Avatar
 
Join Date: Sep 2007
Posts: 16,375
This part of your post just tickles me, for some reason--it sounds so sweet and yet so macabre, the cocktails and everyone enjoying the discussion:

Quote:
Last night we were discussing their finances over cocktails. They are wondering how they will calculate their shares of the proceeds of the sale of their principal residence when the time comes. They both have accountants but we are all enjoying the challenge of working this out.
__________________
Bestwifeever is offline   Reply With Quote
Old 04-26-2008, 07:07 PM   #7
Recycles dryer sheets
 
Join Date: Mar 2007
Posts: 149
Hey troops simmer down. You're right clifp - too much info. We're looking for a math formula - and I think we've found it.

In 5 years - Joe and Mary sell for $700K clear. By then, Joe owes $75K on the equity loan and Mary owes Joe $120K.

Divide $700K by 2 = $350K each.
Mary hands Joe $120K leaving her with $230K.
Joe has $350K plus $120K = $470K minus the $75K he owes, leaving him with $395K.

It adds up to $700K. Musta been the cocktails. Not too bad for 80 year old - eh?
__________________

__________________
outtarentals is offline   Reply With Quote
Reply

Tags
mortgage


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Hawaii home-buyer's mortgage math Nords Other topics 92 06-18-2008 12:08 AM
American Home Mortgage Impact? Sam FIRE and Money 16 04-22-2008 09:02 PM
car sharing eridanus FIRE and Money 0 07-02-2005 03:20 AM
Chief economist for Mortgage Bankers Assn sells home in order to rent cute fuzzy bunny FIRE and Money 14 06-01-2005 04:04 PM
Second Home Mortgage -- Internet Lenders?? Rich FIRE and Money 4 02-24-2005 12:50 PM

 

 
All times are GMT -6. The time now is 09:38 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.