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Shared Appreciation Mortgage
A shared appreciation mortgage (SAM) is a type of home loan where the lender agrees to give the borrower very favorable terms, like low interest rates below the market, in exchange for a share in the profits when the property is sold in the future.
This entitles the lender to a considerable amount of equity should the property increase in value over a period of time.
The attractiveness of such deals with a lender don’t just have the obvious benefits of interest savings or higher LTV, but also tax benefits in the form of deductible interest.
Being considered a form of participation mortgage, a shared appreciation mortgage can sometimes offer a borrower interest rates as much as 40% below what is offered to general consumers.
The terms regarding shared profits can stretch for as long as 10 years. Meaning if the house is sold within 10 years, then the lender gets a cut.
After which, if the property is still not sold, the borrower would be guaranteed long term financing at market mortgage rates.
SAMs used to be quite common.
But as it requires a strong and growing real estate market to make sense for a lender to offer it, such programs disappeared after 2008.
There is also the little matter of liability should something bad occur with the property as the lender would, by right, be a part-owner.