What is a Shared-Equity Mortgage? A Comprehensive Legal Overview
Definition & Meaning
A shared-equity mortgage is a type of loan where the lender and the borrower share the profits from the resale of a property. In this arrangement, the lender receives a portion of the equity in the property, which allows them to benefit from any increase in the property's value. When the property is sold, the borrower first pays off the remaining loan balance. After that, any remaining proceeds are divided between the borrower and the lender based on their agreed-upon equity shares.
Legal Use & context
Shared-equity mortgages are commonly used in real estate transactions. They can be particularly beneficial for first-time homebuyers or those with limited financial resources. This type of mortgage may involve various legal considerations, including contracts and property laws. Users can manage some aspects of shared-equity mortgages through legal forms, which are available on platforms like US Legal Forms, allowing them to create necessary documents with the guidance of legal templates drafted by qualified attorneys.
Real-world examples
Here are a couple of examples of abatement:
Example 1: A couple purchases their first home with a shared-equity mortgage. They agree to share the profits with their lender at a rate of 30 percent. After five years, they sell the home for $300,000. After paying off their loan balance of $200,000, they divide the remaining $100,000, with the lender receiving $30,000 and the borrowers keeping $70,000.
Example 2: A single parent uses a shared-equity mortgage to buy a home. Upon selling the property, they must first pay off the loan balance, then split the profits as previously agreed. (hypothetical example)