Shared equity loans don’t seem like a good deal to me

Kenneth Harney wrote this article on the Washington Post regarding shared equity loans (I’m not even clear if this is the correct name for this).

From the sounds of it the loan would work kind of like a reverse mortgage where the lender would make a loan collateralized by equity in a home.  But instead of collecting interest in the form of monthly payments or through negative amortization (interest accrued that is added to the loan amount) the lender would instead take a cut of the equity in the home when it is sold in the future.

I’m pretty skeptical of this one.  On the surface it sounds like another way for lenders to appeal to undisciplined consumers who like the idea of not having monthly payments much like the negative amortization loans did during 2004-2007.

There are legitimate applications for this type of loan but I would advise that consumers consult with a financial professional they can trust before signing the dotted line.

Additional links- article on “shared-appreciation” loans