Who Owns the House After the Lover's Moved In
NEW YORK ( TheStreet) -- After happily dating you've decided to move in with your significant other. Congratulations!
Now it's time to address a headache-inducing issue: If you start chipping in on the mortgage payment, how would the two of you divvy up the home equity if you were to part ways ? Or suppose one of you was run over by a bus. How would the equity be apportioned between the survivor and the other partner's heirs?
The two of you can agree on anything you want, of course, but you could set up a system that would also make sense to anyone else with a stake in your estates, such as children from previous relationships. Here's how.
First of all, the home's initial owner -- let's call her Jane -- would have sole right to the equity built up before party No. 2 -- John -- starts chipping in. If Jane paid $200,000 for the home 10 years ago and it's now worth $250,000, that $50,000 in additional equity is hers. So get the current value appraised, or agree on a number after checking values on sites such as Zillow.
Jane is also entitled to get back her down payment. Let's say that was $20,000. So the first $70,000 from a sale goes to Jane.
She also has a right to the equity created by paying down her mortgage balance before John came along. If she started with a $180,000 15-year loan five years ago at 6%, she'd now owe about $137,000. So that's another $43,000 in equity that belongs to Jane, bringing the total to $113,000.
The lender will know the loan balance, which will also be on the annual statement that should have come in January. For a month-by-month balance, fill out the Mortgage Loan Calculator , check the circle marked "Report Amortization Schedule by Month" and click "View Report." The popup will show how much of every month's payment goes to principal and interest and how much debt remains at the end of each month.
OK, now John starts pitching in. Let's assume he pays half the monthly payment of $1,519. The amortization schedule will show how much equity he buys each month with the principal portion of his payment. If he starts at month 61, the payment will include $835 for principal and $684 for interest. So if John makes half the payment, he gets $417.50 in equity -- half the principal portion.
The interest portion of his payment doesn't count. In effect, John has taken on responsibility for paying off half of the remaining debt, and he pays interest rather than having to pay the whole amount at once.