What Is a Shared Appreciation Mortgage (SAM)?

A shared appreciation mortgage (SAM) is when the borrower or homebuyer shares a percentage of the appreciation in the home's value with the lender. When a borrower sells their home, they must repay the lender the loan balance plus an agreed-upon percentage of the increase in market value of the home. In return for this additional compensation, the 澳洲幸运5官方开奖结果体彩网:mortgage lender agrees to charge a below-market interest rate.

Understanding Shared Appreciation Mortgages

A shared appreciation mortgage (SAM) differs from a regular mortgage during the resale of the property. With a standard mortgage, the borrower pays the lender the 澳洲幸运5ꦜ官方开奖结果体彩网:principa⭕l owed on the loan plus interest over a set number of years. When the borrower sells the house, the proceeds from the sale are used to pay off the mortgage if there is still a balance owed to the bank.

With a SAM, the borrower agrees to give a portion of the home's appreciated value to the lender when the borrower sells the house, in addition to paying off the mortgage. The appreciated amount that's paid to the bank is called the contingent interest because you're giving the lender an interest in the appreciated value of the property. The contingent interest is agreed upon upfront and is due to the lender upon selling the property. The bank, 澳洲幸运5官方开奖结果体彩网:credit union, or lender will usually offer a ℱlower interest rate on a SAM.

Example of a Shared Appreciation Mortgage

Let's say a homeowner financed $300,000, and at the end of the mortgage, the borrower has paid off the loan. Let's assume the home's value has risen from $300,000 to $360,000 or 20%. The borrower keeps the 20% gain and the proceeds from the sale.

Now, let's say that the borrower entered into a shared-appreciation mortgage with the bank, which has a contingent clause of 25%. The home's value appreciated from $300,000 to $360,000 for a $60,000 gain in value. Under the SAM guidelines, the homeowner would pay the bank 25% or $15,000 of the $60,000 appreciation in value.

Variations of Shared Appreciation Mortgages

Shared appreciation mortgages (SAMs) can have various contingents built into them. A SAM might include a phased-out clause whereby it could phase out entirely or reduce the percentage paid to the 澳洲幸运5官方开奖结果体彩网:mortgage lender over time. ꦫThe clause encourages the owner not to sell the property and to repay the mortgage loan. With some clauses, the contingent interest could🃏 phase out completely, whereby the homeowner owes nothing at the time of sale.

Another🌌 variation of the phased-out clause can stipulate that the borrower pays a percentage of house price appreciation only if the home is sold within the first few years. A typical phased-out term would stipulate that 25% of the value appreciat💙ion be paid to the lender if the borrower sells within five years.

The ideal situation for the borrower would be to keep the house for five years and if there's an increase in value, sell it after the fifth year since the borrower would keep all of the price appreciation. However, there can be risks to the borrower. If a borrower doesn't sell the home and holds the property until the mortgage ends, they might still have to pay the bank their portion of the appreciated value—if there's no phase-out clause.

On the other hand, SAMs help lenders recoup any lost interest if a borrower sells the property before paying off the mortgage. Banks make money on the interest charged on a 澳洲幸运5官方开奖结果体彩网:mortgage loan, and if a 澳洲幸运5官方开奖结果体彩网:homebuyer sells the house, the bank loses🌱 any future interest payments. A SAM helps offset some of the loss of interest on the loan if the property is sold.

Shared Appreciation Mortgages in Practice

Shared appreciation mortgages (SAMs) are sometimes used with real estate investors and house flippers. Flippers are those investors who purchase and renovate a property in the hopes of turning a profit. SAMs for flippers tend to work best in a rising real estate market. However, this type of home loan often has a time limit on repayment of the balance. Properties not sold by the deadline usually have 澳洲幸运5官方开奖结果体彩网:refinancing of the remaining balance at the prevailing market 澳洲幸运5官方开奖结果体彩网:mortgage rate.

Another use for a SAM is when a mortgage loan exceeds the home's value—called 澳洲幸运5官方开奖结果体彩网:underwater. An underwater mortgage can occur if the housing market declines following the home purchase. The bank might offer a 澳洲幸运5官方开奖结果体彩网:loan modification to reduce the mortgage debt, matching the lower market value of the home. In return, the bank could request the modification ဣof the loan to a SAM.

However, there can be various tax issues with SAMs, whereby lenders might not get the same tax treatment for the appreciated gain as borrowers. As a result, it's important to contact a tax advisor or accountant to help sort out whether it's worth pursuing a SAM. After that, it's equally important to research the 澳洲幸运5官方开奖结果体彩网:best shared app💫reciation mortgage companies to ensure you're working with the right one for your unique nee😼ds.

The Bottom Line

A shared appreciation mortgage (SAM) can benefit borrowers since it may help them get assistance or a 澳洲幸运5官方开奖结果体彩网:lower interest rate on a mortgage loan. However, if the borrower sells the ⛄home, they must use the proceeds to repay the loan plus pay the agreed-upon percentage of the appreciated home value to the lender. Please consult a financial professional to rev♏iew the benefits and risks of a shared appreciation mortgage.