A shared appreciation mortgage (SAM) is one which is related to the appreciation of the property in a mortgage. This means that the lender will receive a part of the amount that has appreciated or increased over a specific period of time. There is a difference between such types of mortgages in the U.K and in the United States. However the basic fact that the mortgagee or lender shares a part of the amount of appreciation over a specific period of time remains common among the two nations.

• In the U.K such mortgages are used as a tool for equity release (reverse mortgage) in order to provide a senior financial product. However, this can be disadvantageous to borrowers since property values have usually appreciated in the past. This means that if the value of a home increases then the option of selling and moving to a better residence is no longer available, because the lender takes most of the appreciated value and leaves little for the mortgagor to buy new property.
• In the United States, a shared appreciation mortgage works a little differently than in the U.K. Instead of a fixed amount of shared appreciation mortgage value (as in U.K), the interest rate on the mortgage is reduced. However a contingent interest is agreed upon by the lender and the borrower upon the termination of the mortgage or a stipulated period of time. For example the normal interest rate may be 5% but the contingent rate could be fixed at 20% of the “profit” (appreciation).
• There are advantages and disadvantages associated with such type of mortgages. However the feasibility of the contract depends on many factors including the condition of the housing market, long term expectations in value appreciation, and the general health of the economy. However the factors that influence the decision of whether or not to opt for such mortgages are not limited to the aforementioned general factors. It also depends on the borrower’s financial condition, credit ratings, and past transactions with the lender.
• In the United States, if a borrower in a SAM sells the property when the value of the same has declined then the contingent interest (profit) is simply considered zero. However the principal is still payable and this is what makes SAM a little different than an equity-sharing agreement. Even though it cannot be denied that property values do increase over a longer period of time, it is advisable to take professional opinion before choosing such mortgages.

If you have any more facts or interesting developments to share about this topic, please feel free to leave a comment.