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Shared Appreciation Mortgage (SAM)


Mortgage program where the borrower retains a lower than standard interest rate with the agreement that the lender will be entitled to a portion of the future equity.


This kind of agreement works in favor for both parties because it involves give-and-take on both ends; the borrower is only paying a certain amount to the lender at a rate below market while the lender receives a part of the appreciation in value of the property.

Where a SAM differs from a traditional mortgage is when it comes to the ultimate re-selling of the property.

Once the property is sold using a SAM, the borrower owes the lender the portion of the property’s appreciated value in addition to the outstanding principal balance.

However, a traditional mortgage only requires the borrower to pay the lender the outstanding principal balance of the loan.

Shared Appreciation Mortgage in Action

When it comes to the execution of a SAM, a lender and borrower will both agree to the actual percentage of the amount of appreciated value that is owed to the lender upon sale of the property.

The percentage amount of the appreciated value is also referred to as the contingent interest amount.

For example, if an individual’s seeks out a SAM for $100,000 with a shared appreciation mortgage percentage (or contingent interest amount) of 20% and then sells the property for $300,000, the property’s appreciated value rose $200,000.

According to the SAM on the property, the contingency interest amount that is owed to the lender is $40,000 based off of the appreciated value and the original contingency amount of 20%.

Another clause that may be included in the SAM is called the phased-out appreciation clause, meaning that whatever portion of the loan is being covered by the shared appreciation clause allows there to be a deferred principal owed.

In other words, the borrower only pays a percentage if the property sells within a few years.

Usually, an automatic 25% is owed in appreciation of value to the lender once the property sells.

Who Uses SAMS?

The types of real estate professionals who utilize SAMs the most are real estate investors and house flippers.

SAMs work well and benefit these real estate professionals in long-term situations where the property can properly appreciate in value over time.

Not only that, but the major benefit for lenders is the potential contingent interest may accrue to make up for the loss of profit due to below market interest rates.

Pros vs. Cons

As mentioned above, there are benefits for both parties involved in a SAM. The borrower and the lender experience their own respective profits throughout the process.

However, the uncertainty of the contingent interest amount creates a negative to the use of SAMs.

Properties do appreciate in value however it does take time, making short-term SAMs more expensive for the borrower and not profitable for the lender.

In a short-term deal, there is no guarantee the economic trends would be beneficial or appreciate in value enough to make up for the loss of profit due to decreased interest rates.