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Wakes

Mortgage Overpayments

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A bit of financial advice needed here to do with mortgage overpayments.

Having divorced from my wife, my sister has come in and done me a huge favour by helping me remortgage my 3 bedroom house by putting her name on the deeds. She now owns a quarter of the property, I would never have been offered this mortgage on my own (£195,000) so it seemed like the perfect arrangement. One year on and I have found myself fortunate enough to be in a position to make overpayments having paid off my loans and saved up a bit for backup.

My mortgage payment is £1,250 per month, she currently only pays me £100 a month as my lodger pays me £700 per month (I rent the upstairs of my house out). The remaining £450 I pay myself.

I was thinking of paying an extra £300 per month into the mortgage as I want to save as much money as I can in the long run. The interest rate is 6% so I really don't want to be throwing money away on interest. If I make the overpayments, do you think my sister should contribute to this as well? If she does not, do you think she is getting the best side of the deal while I am continuously throwing money at it? She is getting a great deal anyway and I guess I am being lenient as she is family and has done me a huge favour here.

Thoughts please, Wakes.

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A bit of financial advice needed here to do with mortgage overpayments.

Having divorced from my wife, my sister has come in and done me a huge favour by helping me remortgage my 3 bedroom house by putting her name on the deeds. She now owns a quarter of the property, I would never have been offered this mortgage on my own (£195,000) so it seemed like the perfect arrangement. One year on and I have found myself fortunate enough to be in a position to make overpayments having paid off my loans and saved up a bit for backup.

My mortgage payment is £1,250 per month, she currently only pays me £100 a month as my lodger pays me £700 per month (I rent the upstairs of my house out). The remaining £450 I pay myself.

I was thinking of paying an extra £300 per month into the mortgage as I want to save as much money as I can in the long run. The interest rate is 6% so I really don't want to be throwing money away on interest. If I make the overpayments, do you think my sister should contribute to this as well? If she does not, do you think she is getting the best side of the deal while I am continuously throwing money at it? She is getting a great deal anyway and I guess I am being lenient as she is family and has done me a huge favour here.

Thoughts please, Wakes.

I would buy her out so it's all yours, less complicated that way.

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I would buy her out so it's all yours, less complicated that way.

Thanks for the reply at last, was beginning to think I had written something silly!

WIsh I could afford to buy her out! The likelyhood is that when the 3 year fixed term is up and despite the interest rate probably going down, I still could not afford the mortgage on my own! So would have to have her on the deeds for another couple of years. Its impossible to save up in this day and age, the money I would prob have saved will only go on a new car or something. So I figured the best thing is instead of saving just make over payments instead thus saving thousands?

Wakes.

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Surely as she owns one quarter of the house she should pay one quarter of the mortgage?

And take quarter of a fair rental value for it ...

[edit to add] sounds like the sister is doing the poster a big favour here

Edited by porca misèria

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And take quarter of a fair rental value for it ...

[edit to add] sounds like the sister is doing the poster a big favour here

She owns a quarter, but doesn't pay a quarter of the mortgage as I have a lodger paying £700 a month. The mortgage is £1,250 per month, minus the lodgers £700 = £550. Quarter of £550 = £137.50, she pays just £100. So in theory her payment should equal £137.50 per month into the mortgage? If I make a £300 overpayment per month, should she contribute also? That is my question.

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She owns a quarter, but doesn't pay a quarter of the mortgage as I have a lodger paying £700 a month. The mortgage is £1,250 per month, minus the lodgers £700 = £550. Quarter of £550 = £137.50, she pays just £100. So in theory her payment should equal £137.50 per month into the mortgage? If I make a £300 overpayment per month, should she contribute also? That is my question.

She owns a quarter, she should be paying a quarter can't see what's complicated about that part.

What is she going to get out of the deal at the end of the day, that is what I would be interested in and base any decision on what she should or shouldn't be doing on. If she is going to get 1/4 of any equity then she should be paying the equivalent of a quarter of the overpayments, the fact she isn't paying her full share already would suggest she doesn't want to be doing that.

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You want to make it all fair and above board, set up a separate entity (e.g. a limited company - MyHouse Ltd) with ownership of the house, and responsibility for the mortgage. The company is then owned 75/25 as described.

You then pay market rent to the company to live in the property. That is, a fair rent for the whole house, based on market rents for similar properties in the area. If that covers the mortgage+maintenance then great: the company is profitable pay a dividend to the shareholders (75%/25% again). If there's a shortfall, then the company has to raise more revenue, which you again split 75/25.

At this point, you have a fair startingpoint to overpay. Your overpayments become a loan to the company. Each overpayment transfers a tiny proportion of the company's debt from the bank to you.

If you trust each other, you can do all that as a virtual exercise, as in a thought experiment. The company need be nothing more than a set of accounts featuring equity (the house), costs (mortgage, maintenance) and income (market rent).

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You want to make it all fair and above board, set up a separate entity (e.g. a limited company - MyHouse Ltd) with ownership of the house, and responsibility for the mortgage. The company is then owned 75/25 as described.

You then pay market rent to the company to live in the property. That is, a fair rent for the whole house, based on market rents for similar properties in the area. If that covers the mortgage+maintenance then great: the company is profitable pay a dividend to the shareholders (75%/25% again). If there's a shortfall, then the company has to raise more revenue, which you again split 75/25.

At this point, you have a fair startingpoint to overpay. Your overpayments become a loan to the company. Each overpayment transfers a tiny proportion of the company's debt from the bank to you.

If you trust each other, you can do all that as a virtual exercise, as in a thought experiment. The company need be nothing more than a set of accounts featuring equity (the house), costs (mortgage, maintenance) and income (market rent).

Some interesting points there, I was kind of hoping to make over payments for the next 2 years till my 3 year term is up. Hopefully then the mortgage will be low enough then for me to afford on my own. ( I have had a large pay increase since the mortgage was first taken out) Meanwhile, I am also putting money away which I'm hoping will be enough to pay her off outright in 2 years time. A bit ambitious perhaps but I am kind of hoping!

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Surely as she owns one quarter of the house she should pay one quarter of the mortgage?

Theoretically yes. There is a potential tax issue here as well - she is gaining 25% of the house, and not paying for it. If and when you come to sell, she gets a say in the deal and also walks away with 25% of the price (plus her portion is presumably taxable as it was not her sole residence). The best solution is to find a way of buying her out before the mortgage comes to an end, otherwise you have a tricky situation to disentangle with the tax man looking for a slice of the pie as well.

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  • 261 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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