Pledged-Asset Mortgages, also referred to as Asset-Backed, or Asset-Integrated Mortgages, are specially designed for borrowers who have sufficient income to make monthly payments toward a home, but who have all their ready cash tied up in some sort of investments. Pledged-Asset Mortgages allow borrowers to capitalize on savings without spending them and avoid down payment requirements by pledging their financial assets. Depending upon the lender, you can use almost any type of an investment, including mutual funds or a stock portfolio.

Here's how a Pledged-Asset Mortgage works. You don't make a down payment, but pledge your assets instead. Let's say you want to buy a $100,000 home, and you have $20,000 in stocks, Certificates of Deposit, or any other type of investment. You can either cash in the investment and use that money for the down payment, or you can use the investment as collateral for the loan.

A Pledged-Asset Mortgage generally makes sense for people in a high income tax bracket. This sort of loan is an excellent option if the financial asset you are pledging has a higher expected rate of return than the interest rate on the mortgage, or when the assets you are pledging could cause you capital gains income tax grief if you were to convert them to cash. A Pledged-Asset Mortgage also makes sense for people helping a relative - or an extremely good friend - buy a house. You are still making money on your investments, and the person you are backing has a house.

Benefits of Pledged-Asset Mortgages: You continue to own the investments that are pledged and continue to make any interest or profit that they generate. I many cases the borrower can avoid having to take out mortgage insurance on the loan.

Disadvantages of Pledged-Asset Mortgages: If you default on the mortgage, the lender gets both the assets you pledged as well as the house. Keep in mind that since you are borrowing more money you are paying more interest than you would have paid if you had cashed in the investments and used that money for the down payment. You have to look at how much you are making on your investments and at how much you're paying in interest on the mortgage.