An Introduction to Shared Appreciation Mortgage Loans :

What are shared appreciation mortgage loans?

 Shared appreciation mortgage loans, also known as shared-equity mortgages, are arrangements between the owner-occupant and a lender-investor. In this type of mortgage loan, the investor makes his financial resources available to the individual seeking a mortgage loan. In exchange, he will be entitled to a share of the house’s equity.
When a buyer of a home cannot afford a house on his own, he or she might resort to asking an outside entity for assistance. In a shared appreciation mortgage loan, the investor usually pays a portion (if not the entire amount of) the down payment for the house. The investor may also be required to contribute to the monthly payments. For his trouble, the investor will in essence become a part-owner of the house. If the home is sold at a later time, the lender will receive a proportionate amount of the proceeds and profit stemming from the sale.

Shared-equity mortgage loans can be a great tool for people who want to acquire houses that are beyond their means. However, it has some serious drawbacks. First, problems may arise between the owner-occupant and the lender-investor. For instance, if the lender-investor demands for his share of the house’s equity, the owner might very well be force to sell the property to meet this demand, even if he were unwilling to do so.
Another disadvantage for the owner-occupant is that any improvements he makes on the property will ultimately be owned in part by the lender-investor, even if the latter had nothing to do whatsoever with the said improvement. Before choosing this type of mortgage loan, it might be well to consider the trade-offs between the present and the future.

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