A Shared Appreciation Mortgage (SAM) is a specialized type of home loan where the borrower benefits from reduced initial mortgage payments or lower interest rates by agreeing to give the lender a share of the home’s future increase in value. This unique arrangement allows borrowers to manage upfront costs while the lender bets on the home’s appreciation potential.
How SAMs Work:
- Lower Initial Payments: Borrowers pay less interest or lower monthly payments initially compared to a traditional mortgage.
- Appreciation Share: In exchange, the borrower agrees to pay the lender a specific percentage—typically ranging between 10% and 50%—of the home’s appreciation over the loan term.
- Trigger Events: The shared appreciation usually becomes payable when the borrower sells the house, refinances the mortgage, reaches the loan term’s maturity, or in some cases, upon the borrower’s death.
- Valuation: The home’s value at origination is compared to its value at the trigger event, and the difference (appreciation) is used to calculate the lender’s share.
Example: If you purchase a home for $300,000 with a SAM that grants the lender 25% of appreciation and later sell the home for $400,000, the lender is entitled to 25% of the $100,000 gain, or $25,000.
Who Should Consider a SAM?
SAMs are typically offered through specialized programs, including some government or non-profit initiatives that support affordable housing. They may also be found in high-cost real estate markets to help buyers with limited income or as part of unique financing strategies by developers.
However, SAMs are not commonly available from standard lenders, and are best suited for borrowers who expect modest home value growth or need lower initial payments.
Pros and Cons:
- Advantages: Lower monthly payments upfront can improve affordability and qualification chances.
- Disadvantages: Sharing future appreciation may result in paying more over time if the home value rises significantly. Appraisal disputes may also add complexity.
Important Considerations:
Before accepting a SAM, understand the terms carefully:
- How appreciation will be calculated and appraised.
- When repayment of the appreciation share is due.
- Potential fees or other costs.
Because these loans involve future financial obligations linked to property value, it’s important to seek independent financial and legal advice before entering a SAM agreement.
For more details on different mortgage types and home equity concepts, see our articles on Non-Owner-Occupied Loans.
For further authoritative information about mortgages, you can visit the Consumer Financial Protection Bureau’s guide on mortgages.
