USA mortgages: ‘How did a $42,500 loan turn into a $477,000 debt?’

Cooper’s parents died in 2021, and their house was last year valued at $750,000, so – as things stand – he and his sister will have to hand over most of that to the bank. He says he feels certain his late parents did not realise that that $42,500 loan could spiral to close to $500,000 and “cost their kids their inheritance”.

However, the bank says it recommended at the time that customers took independent financial advice to ensure they understood the product and that it was right for them, and adds that in this case, solicitors were instructed by the borrowers.

The Coopers are among hundreds – probably thousands – of families whose lives have been blighted by shared appreciation mortgages (Sams). This was a type of home loan that was only on sale for a brief period, between 1996 and 1998, and only available from two banks, Bank of Scotland and Barclays.

These loans were ostensibly aimed at helping “asset-rich, cash-poor” older people release some of the value locked up in their homes. They typically allowed people to borrow up to 25% of the property’s value, and usually there were no repayments to make during the lifetime of the loan.

In return, people were required to pay back the original amount when the mortgage was repaid, or when they died and the house was sold, plus a share of any increase in the value of their home.

This share was usually worked out on a three-to-one basis – so if you borrowed 25% of the value, you would be in line to hand over 75% of the future growth in value.

Of course, in the years since those mortgages were sold, house prices have rocketed, leaving people facing massive repayments if they want to move – or, as in the case of Cooper, leaving the offspring of those who signed up with a huge and costly headache.

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