Reverse Mortgages & Shared Appreciation
September 10th, 2007
- Is This The King of Reverse Mortgages?
- Are Two Reverse Mortgages Better Than One?
- Questions To Ask About A Reverse Mortgage
- If Not A Reverse Mortgage, Perhaps Appreciation Sharing
- EquityKey and Shared Risk
The idea of the FHA Home Equity Conversion Mortgage — an HECM or a reverse mortgage — is to allow those 62 and older to obtain equity from their property without selling.
Of course, when it comes to loans — reverse, forward or sideways — there is the little matter of costs. HUD reverse mortgages typically have an interest expense but there is an alternative which can lower that cost. Instead of interest, one can opt for a lower interest rate plus “shared appreciation,” that is, giving the lender a “percentage of the appreciation in the value of the property, in addition to the outstanding balance,
when the mortgage is due and payable.
Imagine that you want a lower interest rate in exchange for 25 percent shared appreciation. Imagine also that your home is now worth $300,000 but the value grows to $600,000 by the time you pass away. In this situation the lender would be entitled to repayment of the loan amount, interest and $75,000. ($600,000 less $300,000 equals $300,000 appreciation. One quarter of $300,000 is $75,000).
Here’s what HUD says about the shared appreciation option:
*Under this type of mortgage, the borrower may have the benefit of
a lower interest rate and, therefore, higher monthly or line of
*A lender that offers shared appreciation mortgages must also
offer comparable mortgages without shared appreciation.
*With shared appreciation mortgages, the lender can only choose
the shared premium insurance option.
*Is shared appreciation a good option? It depends on the interest discount and the appreciation sought by the lender.
As always with a reverse mortgage product, speak with an attorney who specializes in elder law before signing any paperwork.