Shared Appreciation Mortgage

Sam · Posted: Mon Apr 05, 2004 12:23 am Post subject: Shared Appreciation Mortgage

The Shared Appreciation Mortgage (SAM) is a new home mortgage concept having fixed rate and fixed term loan up to maximum of 30 years. For availing SAM, the buyers need to pay less interest rate (maximum of 2%) to the lenders providing a share of the future appreciation value of the home. The interest rate directly depends upon the home appreciation.

To get SAM, the buyers needs to fulfill the criteria stated below:

Buying a home for the first time or not owned during the last 3 years.
To fulfill all the criteria for purchasing home for the first-time.
Based on HUD (US Department - Housing and Urban Development), the income of applicant should be under 80% MFI (Median Family income).

Prepayment penalty restricts the homeowner to go for refinancing for avoiding sharing the home appreciation. Suppose, the total payment is more than the 20% of the outstanding balance of the loan during the first 3 years of the loan as done by the buyer, then he/she is penalized for prepayment in different ways:

2% of the excess of 20% of the outstanding balance of the loan, Or
6 month stated interest of 20% of the outstanding balance of the loan, Or
As per state law.

For example, Andrew took a loan of $400,000 for 5 years from Jack to purchase a home valued $600,000. Jack gave the loan at a very low interest rate, suppose at 2% interest rate. After 3 years the value of the home increased to $900,000; and then in return, Andrew gave him a portion of the appreciated value ($300,000) of the home. This type of mortgage is known as 'shared appreciation mortgage.

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