Shared Appreciation Mortgage (SAM)

A Shared Appreciation Mortgage (SAM) is any mortgage in which the lender writes to the bank or whatever organization doing the lending gets a portion or a percentage of any increase in the property's value. So if the property is a home and the home were to go up $30,000 in value then the lender would be able to get a percentage of that. Not all lenders offer this type of loan and usually, this has to do with maybe a shopping mall, so there's some kind of commercial project the lender "Oh I want to do a SAM loan for this, I think the shopping mall is really gonna go up in value." or it might be some kind of subsidized or affordable housing program that's run by a government. I'll talk about the ways in which they would use the Shared Appreciation Mortgage (SAM) loan.

Example of Shared Appreciation Mortgage

I think it really is easier to understand if we were to walk through an example. Let's say that you have to buy a house and you really want a 30-year mortgage and you're you're needing to borrow $120,000 to buy this home. The market interest rate for a loan is about 7.5%. Let's say your mortgage payment on is monthly basis would be $838.80.

You say "Hey that that's kind of I don't know if I can quite afford it. Is there any way I could get this down? Is there any way I can get this payment cheaper?" The lender says "Yeah there is a way, we can reduce this interest rate for you to 6.5% instead of 7.5%. You might find that wonderful if you were to get a 6.5% that would change things and then your monthly payment would be $758.40.

Now you're reducing your payment here and it looks like this payment is reduced by about $80.40. You're saving $80.40 a month but here's the catch, the lender obviously is giving you a below-market interest rate and they're gonna want something in return. They want in return 15% of the property's appreciation. An appreciation is just the increase in value of the home.

Who would do a Shared Appreciation Mortgage loan? 

Why would this be beneficial to you? Well, what if you don't expect to live in the home for very long? If you're gonna live in the home for 30 years if that's your expectation then there's gonna be a lot of appreciation, in 30 years your house value will go up. There'll be peaks and valleys but thirty years later just due to general inflation your house is probably worth more. If you're not living in the home long that means there's gonna be less appreciation and if there's less appreciation then you're giving the bank less.

What if you don't sell a home?

Now you might be saying I just won't sell the home I'm gonna live there forever and then I never have to give the bank a percentage of the home's appreciation. Well, banks have thought of that and so what they'll have is, they might have something written in the contract that after 10 years if the home is not sold then the bank gets one-third of the appreciation.

Again this depends on the contract you have with your particular lender this is just to give you kind of an idea of how this might work.
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