A security based mortgage works as a traditional home mortgage with one major difference. In this kind of home mortgage, the home loan is not the warranty for the home mortgage; Rather, assets offered by the borrower work as guarantee. These assets may be stocks, T-Bills, bonds, etc.

Since the security based mortgage is not backed by the home, if a borrower doesn't pay the home mortgage, he will not have to loose the home; he will just loose the bonds that secure the home mortgage. The lender company can't foreclosure on the home.

As the security based mortgage is a non-purpose credit, the borrower doesn't need to utilize the funds just for the purchase of the home. He could choose to utilize the funds to purchase a home, or to pay for a holiday or investment home, a higher education, use it on a company or anything else.

A security based mortgage has usually a shorter term than a traditional home mortgage. Depending on the bank you have a mind, the mortgage could last 2, 3, 5 or even 10 years. This flexibility offers the borrower time to obtain a longer term mortgage.

Likewise, this kind of mortgage lets you choose different kinds of payments. Depending on the bank lender, you could have monthly or quarterly payments. You could also have principal and interest payments or interest-only payments with a balloon payment at the end of the home mortgage.

The loan-to-value ratio depends just on the quality of the assets given as a guarantee. In other words, the higher the quality of the stock, the higher the LTV you will obtain. For instance, a loan with stocks from BP as collateral will offer a higher LTV that if you were using a medium-sized business stock.

Likewise, hence the bonds work as warranty for the home mortgage, the borrower's quality and quantity of bonds are the only point for the approval of the home mortgage. Credit is of no significance. The borrower could have foreclosures and still easily qualify for the home mortgage.

At the conclusion of the security based mortgage, the borrower can elect to renew it, or pay the loan off. If the borrower selects to pay off the home mortgage, the stocks are given back to the borrower.

Of course, because this is a fundamental economical choice, it's up to the borrower to find as much as possible on how an security based mortgage functions. Even though this is not the best home mortgage for every homeowner, it might be a good tool for investors with many bonds but with a poor credit history, or for those who desire to ensure that they are not thrown out of their home even if they do not pay the mortgage.

Igor Buces
October 31

Please visit our site to learn more about how a security based mortgage works.

Source: http://www.assetbasedmortgage.us

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