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!!!