How Do You Handle Housing Expenses When Moving In With a Partner Who Owns Their Home?

There are many ways to solve this problem, and it depends on incredibly wide range of factors. But still, here's a framework that I think offers an interesting starting place. If one partner owns the house and the other just wants to live there, the person who owns it should charge 1/2 the interest on the mortgage, updated annually. No principal. No property taxes or insurance. Those are expenses paid by the owner of the house.

If the owner partner has a new mortgage is $325,000 with a 5% interest rate, their payment is $1,744.67 on a 30 year mortgage. The first payment would be $1,352.54 of interest. Divide by 2 and you've got $676.27. This is the MOST that the non-owner would be paying. By the way, if the owner has had the house a few years and paid down the mortgage, the non-owner pays less, not more.

What about this works? For starters, I think it's fair that the person who doesn't have any ownership equity in the home doesn't pay as much as the person who does. This person benefits from market appreciation, as well as the steady amortization of the loan. That's enough. They don't need to be making a profit from their partner moving in with them (and this is what happens when you just "split the mortgage 50/50"). If you're so keen to have them pay 1/2 the mortgage payment, let them have some ownership in the home.

Second, since you're presumably sharing a life together, it's nice to have your finances align with that. If the owning partner wants to be more frugal and pay down the interest, that's good news for next year's rental rate for the "non-owner" partner. The non-owner is participating in that frugality to some extent, or their partner earning more money in order to pay it down. The non-owner has a stake, or receives a benefit from, that mortgage getting paid down. This is good.

When the mortgage is down to $200,000, the total interest is down to just $829.54, of which the non-owners half (or rent) is $414.77. Is that ridiculously low? Maybe. I think it kind of depends on your relationship, your relative incomes, and how you handle your finances. What I like about this is that there is an incentive for the non-owner partner to foster the long-term health of the relationship, but at the same time they are developing their own financial resources and independence (should they want it). Which brings me to my third point....

The non-owner partner is getting a good deal on rent. This is by design. The goal here is to protect the non-owner and allow them to build up resources elsewhere in their financial picture, such that they are in good financial shape whether or not the relationship lasts a lifetime. Owning a home outright is one of the best things you can do to secure your financial situation. If the relationship goes south, the non-owner partner needs a substantial pile of assets (above and beyond their retirement account) with which to buy their own home, and have a similar amount of equity in it. My recommendation is that the non-owner take what they're saving on rent (vs having their own mortgage), and invest it each month in a diverse stock portfolio. Over 10 years, $1000 a month, at 10% a year, grows to $204,844.98.

You don't want to be 50 and taking out a 30 year mortgage. I've met a few people who found themselves in this position. They paid the mortgage on someone else's house for a decade or more, and were left with nothing when the relationship ended. Meanwhile, their former partner has a nicely paid-down house and has benefitted nicely from appreciation in the market. Those outcomes are really unequal. The "worst case" scenario financially is that you live together, share assets, and have extra money to fund trips or an early retirement.

The non-owner partner will almost certainly spend some of their own money here and there on minor repairs, upgrading the garden, adding little homey touches... They'll probably even spend a few weekends spreading barkdust, planting flowers and shrubs, and providing other economic value to the property. My recommendation is that you not keep a fastidious accounting of these investments. These, I think , are part of having a home, whether you rent it or own it. And personally I think it's nice for the non-owner to have a stable place where they don't have to move every 2-3 years, where it makes sense to spend some time putting roots down.

However, the owner of the home should be on the hook for major repairs, as well as taxes, landscaping fees, etc. Why is this? Because if the house from my earlier example grows at 4% a year, after 10 years it will have grown by $198,000, on top of which the mortgage will have been paid down by roughly $56,000. So the equity of the owner in this scenario is $254,000, significantly ahead of the non-owner partner investing in stocks. However, I think the difference of roughly $49,000 is probably close to the expected cost of major repairs, property taxes, etc. So it's pretty fair.

There are certainly other things to consider in addition to just "economic equalization," but I think those are a topic for another article.