HOA’s basic 2nd mortgage is the difference between the home’s cost to develop and build and its market value. This mortgage reduces the amount the family needs to finance and by extension reduces the minimum household income needed to purchase a home.
Homeowners pay no principal or interest on the HOA 2nd mortgage until they sell the home. (The mortgage is fully open so homeowners can also pay out the 2nd mortgage voluntarily at any time they choose.) For buyers needing extra help, the 2nd mortgage can be increased with additional cash funds from HOA, governments and other partners.
The HOA mortgage is a shared appreciation mortgage (“SAM”). A SAM is different from a conventional mortgage because it does not bear a specific rate of interest. Instead, it earns interest at a rate equal to any increase in the value of the home. For example, if at repayment a home with a shared appreciation mortgage has gone up 10% in value, then the mortgage would be discharged with the payment of the mortgage principal amount plus 10% interest.
