Shared Appreciation

Shared equity mortgages are a recent development and some controversy surrounds them. Essentially, you 'the borrower' can take out a loan where no interest is charged and no repayments are required.

In return for this, the home loan lender expects to share in the increase in the value of your property. That is, you 'give up' some of the increase in value of your property over time instead of incurring interest and having to make repayments. This lenders share typically passes to them when either the real estate property is sold, the loan term expires, or the loan is refinanced.

The shared equity loan could form part of an overall package to fund the purchase of a home. A second real estate loan or component is provided to complete the purchase transaction. A typical outcome would see a 'shared equity loan' of around 20% of the property value teamed with a traditional loan requiring repayments and incurring interest for the balance.

The benefit to the borrower is that their monthly repayments are essentially 20% less than they might otherwise have been.