What is a Shared Appreciation Mortgage?
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There is another type of home reversion scheme on the market called a Shared Appreciation Mortgage (SAM) which stands for Shared Appreciation Mortgage. The main feature of a SAM is its simplicity. Typically the bank will advance you 25% of the value of your property, interest free in exchange for 75% of the appreciation of the property when you either sell or die. Suppose your house is worth $100,000. Borrow $25,000 and pay nothing more until you sell or die. Suppose you sell after 10 years and the house is then worth $160,000 (4.81% pa growth). It has appreciated $60,000. You therefore then own the bank the $25,000 you borrowed originally, plus the shared appreciation "interest" of 75% of $60,000, which totals $70,000. So you borrowed $25,000 and repaid $70,000 10 years later. That is an IRR of around 10.8% per annum over double the house growth rate. This is an expensive loan, but the risks are taken entirely by the lender, who is effectively investing in a rent-free property. If the house went up by more, the amount you owe increases too. There are a few other permutations, but at the time of writing, no other lender has funds, so we await a new lender to enter the fray - when they do, the cash tends to be snapped up pretty fast.
