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Consumer Insights
The Department encourages all consumers to stay informed and connected on emerging consumer and financial topics. These resources are a guide for consumers and are for informational purposes only.
Shared Appreciation Mortgages
What is a Shared Appreciation Agreement? Shared appreciation agreements or shared appreciation mortgages (SAMs) are financial products that allow homeowners to access upfront cash in exchange for future interest in their home’s value. These products are different from a home equity line of credit (HELOC) and typically do not require monthly payments. However, homeowners will pay back a lump sum of money at the end of their contract. Most consumers reportedly use the funds to meet pressing financial needs, including debt consolidation, retirement, home improvements, etc. If homeowners cannot pay back their SAM at the end of their contract, they may have to sell their home to settle the contract or risk foreclosure. Illinois became the first state in the Midwest to regulate these products. Please refer to the resources below for more information on the regulations governing them.
Tips for Consumers
- Know the cost. Although you may not make monthly payments with SAMs, you are responsible for a lump sum payment at the end of your contract. Illinois requires providers to disclose varying payoff scenarios, but the final cost can be difficult to predict. SAMs may be more expensive than other home-secured financing options, according to the Consumer Financial Protection Bureau (CFPB). Additionally, homeowners may be responsible for origination, closing costs, counseling, and other fees that will have an impact on the total cost.
- You must receive counseling from a HUD certified agency before entering into the agreement. The counselor must be independent of the provider to ensure unbiased and objective counsel to borrowers. The counseling must cover topics such as the difference between SAMs and Traditional and Reverse Mortgages, key terms used in SAM contracts, the borrower’s financial situation, the risks and benefits of entering into these contracts, and more. You cannot waive the counseling requirement.
- Check the provider’s license with the Department. SAM providers must be licensed and follow all licensee requirements and standards, including displaying their NMLS ID. If you encounter an unlicensed provider or believe they are participating in unsafe or unfair practices, file a complaint with the Department here: Consumer Complaint Form.
- Your Home Valuation Impacts Repayment. Providers must use the same valuation method to calculate the Starting and Final Home Value to ensure consistent results. Significant fluctuations in your home’s value at the start and end of the contract may result in a higher bill.
- Cap on Repayment Amount: The total repayment amount cannot exceed the maximum interest rate under the Illinois Predatory Loan Prevention Act, which is 36% APR. Contracts exceeding this shall be deemed null and void. Note that some providers impose their own cap, but these products may be more expensive than other home-financing options according to the CFPB.
- Restrictions: There may be events that trigger repayment. SAMs also may limit your ability to refinance or borrow additional money against your home. Providers must disclose any restrictions on property use or conditions that could lead to foreclosure or repayment.
- SAMs may not have the same federal protections as other home-secured financing options. Illinois is the first state in the Midwest to regulate SAMs, but they are still relatively new to the market. They do not carry as much protection as reverse mortgages or traditional mortgages. Consult a HUD-certified agency or a lawyer for more information: HUD Counseling Providers.
Requirements for Providers
Note that this is not a comprehensive list of requirements for SAM providers. Refer to the Residential Mortgage License Act Administrative Rules for the regulations governing SAMs.
- Licensing: SAM providers must be licensed under the Residential Mortgage License Act of 1987, meeting all requirements.
- Required Disclosures: Providers must provide plain language disclosures that outline the advanced amount, the appreciation formula, annualized cost, fees, triggering events for repayment, and more. Licensees may refer to Section 1050.Appendix C for the disclosure requirements in the Act’s Administrative Rules.
- Settlement Examples: Providers must explain how the Final Settlement Payment Amount will be calculated and, if example calculations are provided, at least one example must be based on a decrease in home value.
- Counseling: Borrowers must seek independent counseling from a HUD-certified agency. If a borrower receives counseling and elects not to close, the SAM provider must pay for the counseling.
- Communication: Providers must provide timely responses to borrowers, including supplying the initial payoff statement within five business days of the payoff request and three business days after the valuation has been completed for the final payoff amount.
- Reporting & Examination Readiness: SAM providers must comply with licensee obligations including maintaining proper records and adhering to examination procedures.
While SAMs may offer homeowners the ability to access capital, it’s important to understand the implications associated with signing over a portion of your home’s future value. For more information, please refer to the resources below.
Additional Resources:
- Read the Residential Mortgage License Act Administrative Rules for the full rules governing SAMs and other residential mortgage products.
- Check that your provider is licensed with the Department: Residential Mortgage Company Licensees.
- File a complaint with the Department here: Consumer Complaint Form.
- Making Cents of Money is a financial-focused podcast produced by the Department and the University of Illinois System. Check out episodes to learn more about emerging financial topics!
- Read more about the CFPB’s advisory and reports on these products:
