The risks

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A conventional 100% mortgage or otherwise known as the pledged-asset mortgage requires little cash or no cash from you as a down payment. Instead you must place other securities such as saving plans, pensions etc which will allow you to finance up to 100% of your home. The amount of security given is dependant upon what is stated in the mortgage. Generally it would depend on the type of securities you submit to the lenders. The amount should normally exceed the mortgage amount taken out, this allows for fluctuations in pricing for the securities.

If the amount of the collateral falls below the amount recorded in the mortgage agreement when a collateral call is issued then lender has the right to sell off some of the securities without consent. If the collateral does not meet the requirements then you may have to either pledge more securities or end up giving cash.

With a 100% mortgage you would pay more interest than a normal mortgage where a deposit is placed down as security. This would be advantageous if the returns from your property were higher than the mortgage repayments.

This type of mortgage can be a dangerous thing if the interest rates rise, the returns from your portfolio may not keep up with the monthly repayments which would be higher, especially if you have bonds or fixed assets which normally decline in value as the rates increase.

If the securities market was to also decline at the same time the interest rates rise then you might be stick with a big repayment and with market losses which would affect the value of your securities. It may be a good idea to sell off your securities when they are at their highest reducing your mortgage and repayments paying less interest.

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