share-appreciation mortgages (sams), Financial Management

High interest rates in the early 1980s brought about this innovative mortgage arrangement. SAMs use inflation as a way of paying for the property. The lender agrees to charge a very low level of interest on the funds and in turn, the borrower agrees to share a part of the increase in the property value with the lender when the loan matures, or when the property is sold or at some other specified time.

When SAMs came into existence, one-third participation was popular; the lender would agree to decrease the interest charged by about a third of the prevailing rate in return for one third of the appreciation in the property value.

For the borrower, SAMs are attractive as he/she can purchase an otherwise unaffordable home. The lender has the potentially lucrative equity kicker, depending on the rate of inflation. However, the disadvantage with SAMs is that they are not standardized and hence cannot be pooled, packaged into units and sold as securities.

Posted Date: 9/8/2012 7:42:05 AM | Location : United States

Related Discussions:- share-appreciation mortgages (sams), Assignment Help, Ask Question on share-appreciation mortgages (sams), Get Answer, Expert's Help, share-appreciation mortgages (sams) Discussions

Write discussion on share-appreciation mortgages (sams)
Your posts are moderated
Related Questions
What is the common pattern of cash flows for a share of preferred stock? How does the market define the value of a share of preferred stock, specified these promised cash flows?

Product development A strategy which tends to increase sales by the development of new services or products to the same market for example an entirely new or improved existing

how would you incorporate currency exchange risk into the capital budgeting process of foreign investment.

Q. What is Risk mitigation and how it is monitored? 1. When managing risks, there are several risk strategy options to be considered. Risk may be avoided entirely, transferred

Commercial Paper (CP) is a short-term unsecured promissory note issued in the open market. It also represents the obligation of the issuer. Normally, it is issued

1.  Discuss the various techniques of cash management for an efficient working capital Management. 2.  Discuss the MM Hypothesis of Capital structure and its importance in corpo

Capital Asset Pricing Model (CAPM)   Capital Asset Pricing Model (CAPM) is a model which utilizes the measure of systematic risk, 'B' to price assets. The expected rate of r

Question- Under a hire purchase deal structured by X Finance Ltd. for Y Corporation, the finance company has offered to finance the purchase of equipment that costs Rs. 200 lakh.

State the term- adequate working capital If a firm doesn't have adequate working capital, that is, it doesn't invest sufficient funds in current assets, it can become illiquid