What Is a Shared Appreciation Mortgage?

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DEFINITION

A shared appreciation mortgage, also referred to as a "SAM loan," allows a homebuyer to share a portion of their home's gain in value with an investor or a lender.

Definition and Example of a Shared Appreciation Mortgage

SAMs are similar to traditional mortgages, but the buyer agrees to pay a percentage of their home’s appreciation value when they resell it and pay off the loan. The lender offers a lower interest rate on the loan in exchange for that stake in the added value of the home. Lenders often receive a share in the range of 30% to 50% of the home’s rise in value.

The value of your home would have increased by $200,000 if you bought it for $300,000 and sold it years later for $500,000. The lender might take 30% to 50% of that increase, or $60,000 to $100,000. You would keep the rest if you agreed to a shared appreciation mortgage.

  • Acronym: SAM loan

How a SAM Works

Lenders may offer shared appreciation deals as a means of loan modifications for people who might be struggling to stay current on their home loans. This method can make buying a home and meeting the monthly payments more affordable. It can also allow buyers to purchase higher-priced homes than they could have afforded on their own.

Loan servicer Ocwen offered SAM programs as part of loan modifications in the years that came after the housing crisis. Ocwen would reduce the homeowner’s principal balance in exchange for 25% of the home's increased value upon resale. The reduced balance would not have to be paid as long as the owner kept current on those payments for three years.

The borrower must still pay back the original loan in the event that the home is sold and doesn’t appreciate in value, but they wouldn’t have to make any appreciation-based payments to the lender in this case.

SAMs vs. Shared Equity Mortgages

The terms “shared appreciation” and “shared equity” are often used to refer to the same thing in the mortgage sector, but these two loan products are not the same.

The investor or lender owns part of the property in a shared equity arrangement, or SEA. They might cover all or part of the down payment and closing costs, or they might put some other investment into the purchase of the home. They would then recoup their portion of equity when the home is later sold, regardless of whether the property has gone up or down in value. 

Other financing firms, like Point, Haus, and Noah, also offer home equity sharing plans.

The firm Unison offers this sort of plan as well, under the name of “coinvesting.” Unison will help buyers put a 20% down payment on a home, according to its website. Both the buyer and the firm profit if the home value goes up over time.

There are also public versions of a shared equity mortgage. Municipalities, community organizations, and nonprofits assist with the initial costs of owning a home. They might even offer lower mortgage rates for the buyer in exchange for an equity stake in the home in a type of homebuyer-assistance program.

Shared Appreciation Mortgages Shared Equity Mortgages
The owner agrees to pay the lender a percentage of any increase in value upon sale of the home. The equity partner owns part of the property.
The buyer receives a reduced interest rate in exchange. The buyer will receive all or a portion of down payment and/or closing costs.
The lender also shares in any loss if the home loses value. The equity partner will recoup its money at sale whether the home goes up or down in value.

How to Get a SAM Loan

You won’t often find SAMs in the U.S. Buyers have other options for lower down payments and interest rates than they might have had in the past, with options like adjustable-rate mortgages and Federal Housing Administration (FHA) loans.

SAM loans account for just a "tiny fraction" of the total mortgage market in the U.S., according to an MIT study. IRS rules on taxing interest make it hard for lenders to offer SAMs in the U.S.

Key Takeaways

  • A shared appreciation mortgage (SAM) gives a portion of a home's growth in value over the years to a lender in exchange for a lower interest rate.
  • Lenders can receive up to 50% of the home’s increase in value.
  • Lenders will also share in the loss if a property should go down in value for some reason.
  • These loans are rare in the U.S., but lenders may offer them as part of loan modifications. 
  • SAMs can help lower your interest rate and monthly payments. They can make buying a home more affordable. 

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