A split-rate note

The last mortgage repayment variation is the shared appreciation mortgage (SAM). [See RPI Form 430]

The SAM repayment schedule variation is designed to help carryback sellers attract buyers at lower prices during times of tightening mortgage money conditions. The SAM, a type of split-rate note, calls for the buyer to periodically pay interim interest at a fixed rate, then when the principal balance is due, to further pay the mortgage holder additional interest calculated as a fraction of the property’s increased net value since origination.

Under a SAM note, the buyer pays an initial fixed interest rate, called a floor or minimum rate. The floor rate charged is typically two-thirds to three-fourths of the prevailing market rate, but not less than the Applicable Federal Rate (AFR) for reporting imputed interest.

In return, the carryback seller receives part of the property’s appreciated value as additional interest, called contingent interest, when the property is sold or the carryback SAM is due.

The repayment schedule provided by SAM helps sellers attract buyers during times of tightening mortgage money. [See RPI Form 430]