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| HOW ARE VACATION FRACTIONALS FINANCED? |
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© March 16, 2007 by D. Andrew Sirkin.
Any reproduction or use of this document or any part of its content
requires the written consent of the author. Contact Mr. Sirkin at
dasirkin@earthlink.net, or visit www.andysirkin.com
Historically, purchasers of vacation fractionals in small (2-12 share) groups obtained a group mortgage, and purchaser of vacation fractionals in large projects obtained individual financing from the project developer. Today, individual fractional financing is available even for small co-owner groups purchasing a single house or condominium that is not within a fractional or timeshare development.
If there will be a group mortgage, the group will need to calculate how to divide the mortgage payments. If the down payment is shared in the same proportion as the price, the mortgage will also be divided in proportion to price. So, for example, if five families each buy an equal share of a $500,000 home, and each put down $20,000, they will divide the mortgage payments equally. Where the mortgage will be divided in proportion to ownership, the mortgage payments can be lumped together with the operating expenses and handled as described in the preceding paragraph.
On the other hand, if some co-owners contribute more down payment than others (relative to their price), the mortgage division will be different than the ownership division. To illustrate, imagine five families want to equally share a $500,000 home, and plan to buy it with a $100,000 down payment and a $400,000 mortgage. Now suppose Family #1 has only $10,000 for down payment, Family #2 has $30,000 for down payment, and the other families each have $20,000. Family #1 will be buying a $100,000 share of the property with a $10,000 down payment, meaning they will need to borrow $90,000 of the $400,000 mortgage or 22.5% (90/400). Family #2 will be buying a $100,000 share of the property with a $30,000 down payment, meaning they will need to borrow $70,000 of the $400,000 mortgage or 17.5% (70/400). Each of the other families will be buying a $100,000 share of the property with $20,000 down payments, meaning they will each need to borrow $80,000 of the $400,000 mortgage or 20% (80/400). In this situation, all mortgage payments will be divided according to amount borrowed, meaning Family #1 will pay 22.5%, Family #2 will pay 17.5%, and each of the other families will pay 20%. Where the mortgage will be not divided in proportion to ownership, the mortgage payments should be calculated separately from the operating expenses.
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