Hence the home loan is not insured by the house, if a borrower does not pay the home loan, he won't have to loose the house; he will just loose the bonds that guarantee the home loan. The lender company can not foreclosure on the house.
Hence this type of mortgages is a non-purpose loan, the borrower does not have to utilize the funds just for the buy of the home. He could elect to utilize the funds to purchase a home, or to pay for a vacation or rental home, a university education, invest on a corporation or some other use.
An asset based mortgage has generally a shorter life than a traditional home mortgage. Depending on the bank you select, the mortgage could last 2, 3, 5 or even 10 years. This variation provides the borrower time to qualify for a longer term mortgage.
In addition, this type of mortgage offers distinct types of payments. Depending on the lender, you may have monthly or quarterly payments. You might also have principal and interest payments or interest-only payments with a balloon payment at the end of the home loan.
The loan-to-value ratio has to do only on the quality of the assets given as a warranty. In other words, the higher the quality of the bond, the better the LTV you will have. For example, a home loan with stocks from Google as collateral will have a better LTV that if you were using a medium-sized corporation bond.
In addition, hence the stocks work as guarantee for the home loan, the borrower's quality and number of stocks are the solely decision for the approval of the home loan. Credit rating is of no significance. The borrower may have foreclosures and still easily qualify for the home loan.
At the end of the home loan, the borrower can elect to renew it, or pay it off. If the borrower selects to pay off the home loan, the assets are returned to the borrower.
Obviously, because this is a major economical decision, it's up to the borrower to learn as much as available on how an asset based mortgage works. Even though this is not the best home loan for every homeowner, it might be a useful financial tool for home buyers with many stocks but with a bad credit, or for those who desire to make sure that they are not taken out of their house even if they don't pay the home loan.
