residential mortgage combining a fixed rate of interest at below market rates, and lender participation in any equity appreciation in the mortgaged property. A shared appreciation mortgage has a low monthly payment, as compared to a fixed rate conventional mortgage, and typically is a short-term (under five years) loan. This type of mortgage is appealing to mortgagors who borrow in periods of high interest rates, expecting to refinance later on at a lower rate.
mortgage in which the borrower receives a below-market rate of interest in return for agreeing to share part of the appreciation in the value of the underlying property with the lender in a specified number of years. If the borrower does not want to sell at that time, he or she must pay the lender its share of the appreciation in cash. If the borrower does not have that amount of cash on hand, the lender may force the borrower to sell the property to satisfy their claim.
residential loan with a fixed interest rate set below market rateswith the lender entitled to a specified share of appreciation in property value over a specified time interval. Loan payments are set to amortize the loan over a long-term maturity, but repayment is generally required after a much shorter term. The amount of appreciation is established by sale of the home or by appraisal if no sale is made.
Example: Hogan obtains a shared appreciation mortgage. The interest rate on the loan is 4%, with the lender receiving 1/3 of any appreciation after 10 years. At the end of 10 years, Hogan does not wish to sell the home. An appraisal is made to establish the appreciation amount. Hogan must retire the loan by refinancing with a new loan the amount of the unpaid balance plus the appreciation share.
