What is a Mortgage Principal Repayment?
A mortgage principal repayment is an amount paid by the co-owner towards their mortgage principal that is returned to them from the home sale proceeds.
This repayment occurs before the co-owner and Hany Adam Homes split any sale proceeds, meaning, the money a co-owner pays toward their mortgage is a priority repayment, even if the home doesn’t increase in value.
Why is this term important?
Mortgage principal repayments are important as they prioritize the co-owner getting back the payments they made towards their mortgage principal before Hany Adam Homes receives any portion of the home’s appreciation.
If a home sells for less than we co-bought it, the co-owner will get as much of their mortgage principal payments back as possible, even if that means Hany Adam Homes makes $0 on the investment.
Here is an example:
A sample sale scenario of a $1,500,000 home can be used to show how the mortgage principal repayment is used.
Let’s say an Ourboro co-owned home is sold for $1,500,000. First step, the bank will be paid back, just like in a traditional home sale. If there was $700,000 outstanding on the mortgage the bank would receive their $700,000 and there would be $800,000 left in sale proceeds.
Now, in this example let’s say, while the co-owner lived in the home, they paid $100,000 towards their mortgage principal. That $100,000 would come out of the sale proceeds and go directly toward the homeowner’s share of proceeds. This is their mortgage principal repayment. The remaining sale proceeds would then be divided between the co-owner and Hany Adam Homes based on our equity split in the property.
