What Is a Shared Appreciation Mortgage?

Definition and Examples of a Shared Appreciation Mortgage

Couple sitting at a table with a lender looking at a laptop screen
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A shared appreciation mortgage, also referred to as a SAM loan, allows a homebuyer to share a portion of their property’s gain in value with an investor or a lender. This guarantees the lender a return, so it typically offers a lower interest rate and a lower monthly payment on the loan in exchange.

These types of mortgages aren’t all that common in the United States.

What Is a Shared Appreciation Mortgage?

Shared appreciation mortgages are similar to traditional mortgages, but the homebuyer agrees to pay a percentage of their home’s appreciation value when they resell the property in addition to paying off the loan.

The lender offers a lower interest rate on the loan in exchange for that stake in the appreciation. Lenders generally receive a share of 30% to 50% of the home’s appreciation in value, according to Bright MLS, a Mid-Atlantic area multiple listing service.

  • Acronym: SAM loans

How a Shared Appreciation Mortgage Works

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

This method can make purchasing a home and the associated monthly payments more affordable. It can also allow buyers to purchase higher-priced properties than they would otherwise have qualified for.

Lenders sometimes offer shared appreciation arrangements as a means of loan modifications for homeowners who might be struggling to stay current on their loans. 

Loan servicer Ocwen offered SAM programs as part of loan modifications in the years following the housing crisis. Ocwen would reduce the homeowner’s principal balance in exchange for 25% of the property’s appreciation value upon resale. The reduced balance would be forgiven as long as the homeowner kept current on those payments over a three-year period.

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.

Shared Appreciation vs. Shared Equity Mortgages

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.

The investor or lender actually owns a part of the property in a shared equity arrangement. They might cover part or all of the down payment and closing costs, or put some other investment into the initial purchase of the property. They would then recoup their portion of equity when the home is later sold, regardless of 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.” Unison will help homeowners achieve a 20% down payment on a home, according to its website. Both the homeowner and the company profit if your home value increases over time.

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

There are also public versions of the shared equity mortgage in which municipalities, community organizations, or nonprofit organizations assist with the initial costs of homeownership. They might 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.

Shared Appreciation Mortgages Shared Equity Mortgages
Homeowner contractually agrees to pay the lender a percentage of any increase in value upon sale of the property The equity partner actually owns part of the property 
Homebuyer receives a reduced interest rate in exchange Homebuyer will receive all or a portion of associated down payment and/or closing costs
The lender also shares in any loss if the property loses value Equity partner will recoup its money at sale, regardless of an increase or decrease in value
   

How to Get a SAM Loan

You won’t find shared appreciation mortgages often in the U.S. Homebuyers 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 Sloan School of Management study. 

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

Shared appreciation mortgages were seen in the U.K. quite regularly in the mid-1990s, but the MIT study found that 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.”

Key Takeaways

  • A shared appreciation mortgage (SAM) promises a portion of a property’s appreciation 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 appreciation in value.
  • Lenders will also share in the loss if a property should depreciate in value for some reason.
  • These mortgages are rare in the U.S., but lenders sometimes offer them as part of loan modifications. 
  • Shared appreciation mortgages can help lower your interest rate and monthly payments, and can make buying a home more affordable. 

Article Sources

  1. Bright MLS. "Mortgage Information." Accessed Sept. 7, 2020.

  2. Ocwen. "Ocwen Offering Mortgage Modifications That Restore Equity for Underwater Borrowers but Let Loan Investors Share in Appreciation When Market Recovers." Accessed Sept. 7, 2020.

  3. Unison. "How It Works for a Homebuyer." Accessed Sept. 9, 2020.

  4. MIT Sloan School of Management. "How a New Spin on Mortgages Might Ease the Next Housing Bust." Accessed Sept. 7, 2020.