Shared Appreciation Mortgage (SAM)

A shared appreciation mortgage is a home loan in which the lender and borrower come into agreement that the latter will give up part of the property’s future appreciation in value to the former, and in return obtain a lower interest rate.

For example, a house is purchased for $200,000 at market value with a loan to value of 80% equating to $160,000. The agreement between lender and borrower is that in exchange for a lower mortgage rate, the borrower would give one-third of the property’s appreciation over the next 8 years.

At the end of 8 years, the loan balance becomes $120,000 while home value rises to $230,000. Out of this increase in value of $30,000, $10,000 would be the lender’s share.

The borrower will then refinance the loan with the lender for a loan amount of $120,000 plus $10,000 for a total of $130,000.

Sometimes the lower interest rate can be replaced by an interest deferral, or a combination of the two.

There was a period of time before the millennium when SAMs were very popular with consumers.

But interest slowly died down when homeowners realized that they were better off keeping the growth in their home equity for themselves.

Those were the days when there seemed like nothing could stop the real estate appreciation train.

In recent years, there were attempts to revive SAM but it never reached the glorified levels it attained in the past.

Anyway with real estate values depressed since 2008, lenders are not finding these types of loans as attractive as before.

These days shared appreciation mortgages are most commonly found in second mortgages or reverse mortgages.