# How to calculate the equity owned in a jointly owned mortgaged property?

I jointly own a property with two of my sisters. When we purchased the property I put a £10,000 deposit down and was the sole contributor to this. All three of us are currently paying one third of the mortgage payment each.

One of my sisters is now moving out and I am going to be picking up her share, so paying two thirds of the monthly mortgage payment from this point forward, and we are hoping to sell in approximately nine months.

How do we fairly work out our individual shares to take into account my increase in mortgage payments, and the reduction in my sisters'? Thanks.

I am happy just to get my deposit out with no interest on that. I am close to my two sisters, so there is no argument over the deposit. Also, we did a deed document at the time of purchase to say that I would get this deposit repaid first.

After payment of the mortgage, the deposit, and other associated costs, we think (based on a recent valuation) that there will be an additional surplus of £12,000 to be split between the three of us. However, if I do end up covering one of my sisters' share of the mortgage, which is approx £275 per month for the next nine months, then I would want this to be accounted for in my share of the surplus, if that makes sense?

Thanks for all your help so far.

• I think you need to involve a lawyer at this stage. Jan 21, 2014 at 22:26
• @kaushik, I disagree, if you can come to an agreement that everyone is comfortable with, there's no reason to pay a lawyer. It depends on the family of course, but I wouldn't need a lawyer to feel comfortable working with my siblings on such things. Jan 22, 2014 at 0:42
• Has the value of the property increased significantly over the time that you have owned the house? Jan 22, 2014 at 0:54

There is no 'right' answer, only a choice of ways to calculate and you'll all need to choose what's right for you.

One way - You each own 1/3 (right?) and on sale the mortgage is paid off but you then get £10,000 plus accrued interest (at the same rate as the mortgage) off the top. This is the same as if you lent each sibling £3,333 at that rate.

One variation is to get your £10,000 at no interest, if you feel making extra money off the sisters is not what you want.

A caution to readers - this kind of thing should be discussed up front.

Updated to respond to OP update - for such a short period, track the extra you put it for the sister wanting out. In return, she waits to get the lump sum after the sale.

• Yet another alternative: the £10,000 could be considered a stake in the equity, relative to the purchase price, and it is the remaining equity that then gets split 3 ways. I'd look at if the £10,000 was expected to be paid back separately (a loan) or remain at risk (equity). Jan 21, 2014 at 22:56

This may vary from country to country, but in the US a mortgage payment includes several items:

• Money for property taxes placed in escrow
• Insurance costs (mortgage insurance and home owners insurance are some examples over here)
• The interest accrued since the last payment
• Payment toward the principal

If I were splitting the equity I would create ledgers giving each family member credit for their individual contributions to equity. Your first entry would be £10,000. For further entries for each member it would be 1/3 of the principal payments after interest, insurance, and taxes are deducted from the total. Of course after you take over your sister's portion, your share will become 2/3 of the principal payment. When sold, the totals from the ledgers would be used as a basis for paying out the equity proportionally. (I would consider taxes and insurance costs to be part of normal living expenses that would appear in your rent if you were renting an apartment together instead of owning together.)

Update:

With the additional information provided it's pretty straightforward to simply count the number of payments each family member has paid (1/3 of the mortgage = 1 payment) and pay out the equity proportionally. I'm leaving my above answer unchanged for the benefit of future readers who planning a similar arrangement to consider.

• How do you account for increase/decrease in value? Jan 22, 2014 at 2:41
• @JoeTaxpayer Proportionately, I would imagine. But IMHO it still gets back to whether the £10,000 was at risk. i.e. Was there an agreement or expectation that, say, if there was no/insufficient equity after a sale (prices dropped) that the OP would be made whole on that £10,000 by the sisters? Then it is a loan and not additional equity. I just noticed the OP had clarified the nature of the deposit in an answer; it's a loan; I've incorporated the new information back into the question. Jan 22, 2014 at 14:04