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| Summary / Description | Financial publication discussing Shared Appreciation Mortgages (SAM) dating back to 1980's. |
| Type of Prior Art | Online Publication |
| URL | http://library.hsh.com/read_art... |
| Author/Creator | HSH Associates, Financial Publishers |
| Title | Shared Appreciation Mortgages Re-Debut |
| Publication Date | 2000 |
| Publisher | HSH Associates, Financial Publishers |
| Directions to Document Location | |
| Additional Information | The 2006 article mentions: 'This article was originally published in 2000.' |
| Notes | |
Excerpt The SAM was introduced in the early 1980's, when interest rates were high enough to make mortgage qualifying a real challenge. The idea was to give borrowers a lower interest rate -- as much as 2% -- in exchange for sharing the property's increased future value with the lender. It promised both easier qualification and a monthly payment that was easier on the budget.The SAM is a fixed rate, fixed term loan that can run up to 30 years. In exchange for a lower interest rate, you agree to give up a portion of the home's future value -- the difference between what it's worth now and what it will be worth then. The interest rate is reduced depending on how much of the property's appreciation you bargain away. For example: Standard 30 Year Fixed Rate Mortgage: 8.00% SAM w/20% Appreciation given to investor: 7.50% SAM w/30% Appreciation given to investor: 7.00% SAM w/40% Appreciation given to investor: 6.50% SAM w/50% Appreciation given to investor: 6.00% (Note that the actual appreciation share/interest rate breaks may differ from this example.) Any increase in the value of the home will be split with your mortgage lender if you refinance, move (paying off the loan in the process) or otherwise terminate the loan. Say you buy a home valued at $100,000. After three years, you decide to move; your home has appreciated by $9,273. In a 50% revenue-sharing arrangement, you'd owe the lender half that -- $4,637 -- plus, of course, the remaining unpaid balance of your loan. If you keep the SAM for the full 30-year term (lesser if you've been prepaying), you may need cash to pay for the lender's appreciation share. Assuming an average of 2.5% price inflation, your $100,000 home will be worth a whopping $204,640 after 30 years. In a 50% appreciation-sharing arrangement, you'll need to come up with $52,320 in cash after your last payment. One way is to invest most, if not all, of your interest savings over that time. An $80,000 30-year fixed rate mortgage at 8% would have cost about $131,324 in interest over 30 years. With a 6% SAM, you'd save $38,654 in interest, leaving a shortfall of $13,666 (not counting any interest from investing it). If you're not selling your home when the SAM ends, you'll need to come up with the money, whether from savings or a home equity loan. If you're facing retirement -- and the prospects of living on a more fixed income -- at that time, you might be dismayed at the prospects of another starting a new mortgage. The contract states that what you owe is due and payable, with no extensions. Be aware, also, that the full loan amount, plus any appreciation, may become immediately due if you don't live in the home for at least a year. |
A method for financing real estate employing a shared appreciation mortgage, comprising the steps of: a customer seeking approval from a lender for the purchase of a real estate property at a price; after approval the customer entering into a main contract for the purchase of the property; the customer obtaining a loan from the lender, secured by a mortgage over the property, to purchase the property, the loan containing a first loan and a second loan, where the first loan is a conventional principal and interest loan arrangement, and the second loan is an interest only loan where the interest rate is related to the rate of rental return from real estate properties of the value of the second loan; the customer and lender entering a residential purchase contract containing an obligation for the lender to pay to the customer an amount equal to the outstanding second loan immediately before the property is sold in order to purchase an interest in the property proportional to the value of the outstanding second loan relative to the original purchase price of the property, so that the lender and customer jointly own the property at the time of sale; and, the customer having an obligation to repay the outstanding part of the first loan and the outstanding part of the second loan upon the sale of the property; wherein, the size of the second loan is periodically reviewed.
| Relevance | See the Excerpt. |
United States