The Use of Shared Appreciation Mortgages to Increase Demand for 15-Year Mortgages

Abstract

There are more than 5 times as many 30-year mortgages than 15-year mortgages in circulation even though the 15-year mortgage interest rate is consistently lower than the 30-year mortgage interest rate. The relative popularity of longer term 30-year mortgages can be attributed both to the tax deduction for mortgage interest and the inability of many individuals to afford payments on a shorter term 15-year mortgages. The use of shared appreciation mortgages (SAMs) can make 15-year mortgages affordable to homebuyers. The impact of SAMs combined with the use of 15-year mortgages on wealth accumulation depends on mortgage interest rates and capital gains. Calculations presented in this paper examine the wealth accumulation of different mortgage arrangements based on historic interest rates and different capital gain assumptions.