Mortgage vs Home Equity

Shared Appreciation Mortgages are making big news. Can they be YOUR answer?

When you are comparing a Mortgage vs Home Equity Loan, you will probably see ads for lenders offering fixed rate mortgages for a low rate.An old mortgage type is making a comeback ...

Meet SAM, a Shared Appreciation Mortgage or SAM for short. In the 1980s, when lending interest rates were high, the shared appreciation mortgage made its debut. When rates are high, it makes qualification criteria more stringent.

The main thought behind the SAM was to offer borrowers a lower interest rate up to 2% lower for an agreement to share the future increased value of the property with the lender. Easier qualifying criteria and a significantly lower payment were the promises for this dilemma, Mortgage vs Home Equity.

What became of SAM?

But SAMs never became popular; Mortgage vs home equity loans and adjustable rate mortgages (Arms) offering a lower rate today as well a potentially lower rate tomorrow, were more attractive to the masses than the fixed rate mortgages. As a result, the SAM was put away and forgotten. Until now, that is.

Mortgage rates are again becoming uncomfortably high and Arms have lost their appeal with interest rates not far below FRM (fixed rate mortgage) rates. Many borrowers are not attracted to an interest only mortgage as a result.

Who benefits from a shared appreciation mortgage?

The shared appreciation mortgage has a fixed interest rate and a fixed term up to 30 years. You agree to forfeit a part of the home's future market value in exchange for a lower rate of interest. This is the difference between what the home is worth presently and what it is worth will be a few years from now. Since real estate will appreciate over time, this is a boon for the lender more than the borrower. This is different from a typical home equity loans.

Your interest rate is reduced based on how much of the future appreciation you give away. Choose which is the best for you, Mortgage vs Home Equity. For example, you might see the following from a lender: (Note: This is only an example. Rates and breaks may differ.)

30-Year Fixed Rate Mortgage: 9.25%
SAM w/20% Appreciation: 8.75%
SAM w/30% Appreciation: 8.25%
SAM w/40% Appreciation: 7.75%
SAM w/50% Appreciation: 7.25%

Any increase in the home's value will be split with the lender in the case of a refinancing, pay off the loan in the process of moving or otherwise terminate the loan before it matures.

Say you buy a home with a value of $200,000. A couple of years later, you choose to move. Your home has increased in value by $15,000. Assuming a 50% appreciation agreement, you would owe your lender half of that amount or $7500 plus the remaining unpaid balance of the mortgage and any penalties that may be called for in the contract.

If you keep the SAM for the full term, the shared appreciation will be due to the lender after the last payment.

Are home improvements deducted from the equity in the property?

Home improvements may or may not be included in the appreciation calculation. It is wise to follow and check the rules of the SAM closely. The terms will detail what is and is not included in the appreciated value.

Whether a SAM is right for you, or not, is up to you. If you intend to make significant improvements to the home, you may want to think that out thoroughly before you sign the agreement. Always be sure you understand the terms and conditions. Your best option is to compare several Home Equity Mortgage Refinancing Loans with LendingTree Mortgage Refinance.

Is a SAM mortgage right for you? Find resources to obtain second mortgages, home equity loans, or refinance of an existing mortgage right here

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