Shared Appreciation Mortgage (SAM)

What is a shared appreciation mortgage?

A shared appreciation mortgage, or SAM, is a home loan where the lender offers a below-market interest rate in exchange for a share of the profit when the house is sold. A SAM for the most part has a cutoff time for paying off the principal, for instance, 10 years.

More profound definition

The housing market determines whether a shared appreciation mortgage is a fair setup. In a market where home prices are rising long-term, it's typically not a reasonable plan for the borrower since she will in any case owe the outstanding principal balance in the event that the property's value diminishes.
Then again, the share of valued value, alluded to as contingent interest, will be zero in the event that the borrower sells the property at a loss.
Shared appreciation loans additionally are utilized by nonprofits and legislatures. They are structured as second mortgages, however borrowers make no payments until they sell the property or refinance the principal mortgage. After the sale or refi, the borrower must repay the full loan amount, plus a portion of the home-cost increase.

Shared appreciation mortgage model

Margie buys a house for $150,000, paying down $30,000 and taking out a mortgage for $120,000. In exchange for an interest rate that is below the market average, Margie consents to give the lender 20 percent of the increase in value when she sells. The lower interest rate of her shared appreciation mortgage makes her regularly scheduled payment more affordable.
When Margie is ready to sell her home, the property value has multiplied, to $300,000. She must pay off a principal balance of $100,000, plus another $30,000 to the lender for its share of the valued value: .20 x $150,000 = $30,000.
This leaves Margie $170,000 to buy another home.

Features

• In a shared appreciation mortgage (SAM), the purchaser of a home shares a percentage of the appreciation in the home's value with the lender.
• In return, the lender consents to charge an interest rate that is lower than the overall market interest rate.
• A shared appreciation mortgage can have a deliberately gotten rid of clause following a set number of years.