What you need to know about shared appreciation mortgages

Do you live in a part of the country where real estate values are through the roof and aren’t planning to live in your home for more than a few years? Are you in debt and want a lower interest rate than a typical second mortgage? Then a shared appreciation mortgage (SAM) may be the one for you.

A SAM is a fixed rate, fixed term loan that has a life of 30 years or less. The homebuyer agrees to give up a part of the home’s future value in exchange for a lower interest rate. Often the homebuyer can garner an interest rate up to 2 percent less than a conventional, fixed-rate mortgage.

A SAM may not be a good idea if you buy a fixer-upper. All improvements or upgrades you make will count as appreciation..

If your home's value declines during the SAM term, you're only liable for the mortgage amount. If the value declines too much, however, you may be left with no equity at all. You could end up paying at the table when you sell your home.

A SAM may work as a great way to refinance if you need to free up cash, especially if you don’t have much equity. Refinancing for debt-consolidation may use up all the equity you've built. High Loan-to-Value refinances -- when you borrow 100 percent or more of the home's value -- often come with higher interest rates, fees or both. A SAM, can provide a low interest rate and more available cash now.

It might be tempting to take a SAM for a while and then refinance to avoid sharing the appreciation, but SAMs have a prepayment penalty to keep you from doing so.

Income tax rules are very complicated when it comes to a SAM. You should work with an accountant to determine if the loan is right for you. You’ll also want to have your taxes done professionally each year with a SAM, so include that in your cost analysis when determining if this is the mortgage for you.