Possible Revival Of Shared Appreciation Mortgages

September 28, 2009

Sometimes old becomes new in the home mortgage field. That could be the case with the shared appreciation mortgage (SAM) – an old concept that is showing signs of renewed interest. This is a mortgage where the lender agrees to an interest rate lower than the prevailing market rate in exchange for a share of the appreciated value of the home.

The share of the appreciation in value is known as the "contingent interest." It’s determined and due at a sale closing or at the termination of the mortgage. In the past, these mortgages were particularly popular when prevailing rates were very high. Now, of course, mortgage rates are at historic lows.

The primary appeal of SAMs today is from homebuyers who are just marginally meet qualification requirements to finance the purchase of a home. This is most common with young first-time home buyers. The lower interest rate and mortgage payments of a SAM help buyers afford and qualify for financing. In a typical case, the lender might reduce the mortgage interest rate by a full percentage point when claiming 20 percent of the appreciated value of the property. A SAM should not be confused with an equity-sharing agreement. With a SAM, the borrower continues to owe the entire current balance of the loan even if the property’s appraised value should decrease.

Posted in Lending, Real Estate, Things of Interest