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Simple English definitions for legal terms
shared-appreciation mortgage
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A quick definition of shared-appreciation mortgage:
A shared-appreciation mortgage is a type of loan where the lender can get a percentage of the property's value when it is sold or at a future date. This is called contingent interest. It means that if the property increases in value, the lender can get more money back. This type of mortgage is different from other mortgages where the borrower only pays back the loan amount plus interest.A more thorough explanation:
A shared-appreciation mortgage is a type of mortgage where the lender has the right to receive a percentage of the property's appreciation in value when it is sold or at a specified future date. This percentage is considered contingent interest. The borrower and lender agree on the percentage of appreciation that the lender will receive. The borrower benefits from lower interest rates and the lender benefits from a share of the property's appreciation.
For example, if a borrower takes out a shared-appreciation mortgage with a lender and the property's value increases by $100,000, the lender may be entitled to receive $20,000 (20% of the appreciation) when the property is sold or at a specified future date.
Another example is if a borrower takes out a shared-appreciation mortgage with a lender and the property's value decreases, the lender does not receive any contingent interest. The borrower is still responsible for paying back the loan amount.
Shared-appreciation mortgages are not as common as other types of mortgages, but they can be beneficial for borrowers who want to lower their interest rates and for lenders who want to share in the potential appreciation of the property.