As of 2022, Americans have accumulated more than $20 Trillion in home equity according to the Federal Reserve. However, many homeowners are reluctant to tap into their housing wealth due to the current high-interest market conditions. That is why non-traditional home financing options are beginning to gain popularity. One of these options is a shared appreciation mortgage (SAM).
A SAM is a loan that allows a borrower to share a percentage of the appreciation in their home’s value with a lender. In exchange for a lump sum of loan proceeds to the borrower, the lender will charge an interest rate that is typically below market, plus an additional cost that is contingent on the home’s appreciation. For most SAMs, borrowers are not required to make additional monthly mortgage payments; instead, the loan is repaid in full when it matures. The maturity event can occur when it reaches term or when the borrower refinances or sells the home.
A shared appreciation mortgage can help mitigate the pressure of additional monthly mortgage payments while still allowing the borrower access to immediate funds, at a below-market rate.
