What Is a Shared Appreciation Mortgage?

Sharing in your home profits might be a way to save money

Couple Sits at Table With Lender Looking at Laptop Screen
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Shared appreciation mortgages, also referred to as SAM loans, allow homebuyers to share a portion of their property’s value gains with an investor or lender. Because this offers the lender a guaranteed return, it typically means a lower interest rate and a lower monthly payment on the loan. However, these types of mortgages aren’t yet common in the U.S.

How These Mortgages Work

Shared appreciation mortgages work similarly to traditional mortgages, only the homebuyer agrees to pay off the loan, as well as a percentage of his or her home’s appreciation value upon reselling the property. In exchange for that stake in the appreciation, the lender offers a lower interest rate on the loan. According to Bright MLS, a Mid-Atlantic-area multiple listing service, lenders generally receive a share of 30% to 50% of the home’s appreciation in value.

For example, if you buy your home for $300,000 and then sell it years later for $500,000, the value of your home increased by $200,000. In a shared appreciation mortgage, the lender may take 30% to 50% of that amount—$60,000 to $100,000—and you'd keep the rest.

This method may make purchasing a home (and the monthly payments that come with it) more affordable. It can also allow buyers to purchase higher-cost properties they otherwise wouldn’t qualify for.

Sometimes, servicers offer shared appreciation arrangements as a means of loan modification—particularly to homeowners who may be struggling to stay current on their loans. Loan servicer Ocwen, for example, offered SAM programs in the years following the housing crisis. In exchange for 25% of the property’s appreciation value upon resale, Ocwen would lower the homeowner’s principal balance. As long as the homeowner kept current on those payments for a three-year period, the reduced balance would be forgiven.

In the event the home is sold and did not appreciate in value, the borrower must still pay back the loan. However, in that case, he or she does not have to make any appreciation-based payments to the lender.

Shared Appreciation vs. Shared Equity

The terms “shared appreciation” and “shared equity” are often used interchangeably in the mortgage industry, but these two loan products are not one and the same.

In shared equity arrangements, the investor or lender actually owns a part of the property. They might cover part or all of the down payment, closing costs, or put some other investment into the initial purchase of the property. When the home is later sold, they recoup their portion of their equity—whether the property has increased or decreased in value. Unison is a good example of this type of arrangement. The company actually bills it as “co-investing.” According to its website, Unison will help homeowners achieve a 20% down payment on a home. And if your home value increases over time, both the homeowner and the company profit. If it decreases, the company also shares in the loss.

Other financing companies like Point, Haus, and Noah take similar approaches.

There are also public versions of the shared equity mortgage. In these, municipalities or community organizations assist with the initial costs of homeownership or even offer lower mortgage rates for the buyer in exchange for an equity stake in the home. These are often considered a type of homebuyer assistance program.

SAM Loans Aren’t Common in the U.S.

You won’t find shared appreciation mortgages often in the U.S. With options like adjustable-rate mortgages and Federal Housing Administration (FHA) loans, homebuyers have options for lower down payments and interest rates than they may have had in the past. According to an MIT Sloan School of Management study, they account for just a “tiny fraction” of the total mortgage market in our country. 

IRS rules on interest taxation complicate lenders’ ability to offer shared appreciation mortgages in the U.S. 

On the other hand, shared appreciation mortgages were seen in the U.K. quite regularly in the mid-1990s. As the MIT study found, though, they “earned a bad reputation when the contracts took a hefty share of homeowner equity gains—in some cases up to 75%—during an era of dramatic appreciation in home prices.”

The Bottom Line

Shared appreciation mortgages can help you lower your interest rate and monthly payments, and may make buying a home more affordable. 

These programs are sometimes offered by lenders as a type of loan modification for homeowners who are behind on their mortgages.

While SAM loans reduce the profits you’ll get on your home down the line, if your home does not appreciate, you won’t owe anything more than your loan balance to your lender. In SAM arrangements, most lenders take between 30% and 50% of your home’s appreciation.

Shared appreciation mortgages aren’t very common in the U.S., so you may have trouble finding a program to participate in. Shared equity mortgage options are more prevalent in the U.S., though it’s important to remember that the two arrangements are not the same.

Article Sources

  1. Bright MLS. "Mortgage Information." Accessed March 26, 2020.

  2. Ocwen. "Ocwen Offering Mortgage Modifications That Restore Equity for Underwater Borrowers but Let Loan Investors Share in Appreciation When Market Recovers." Accessed March 26, 2020.

  3. Unison. "How It Works for a Homebuyer." Accessed March 26, 2020.

  4. MIT Sloan School of Management. "How a New Spin on Mortgages Might Ease the Next Housing Bust." Accessed March 26, 2020.