Hey Lykkers, let’s talk about a lesser-known strategy in home financing that can change how a lender sees your application. Most borrowers expect the usual checklist: income proof, a strong credit profile, and an interest rate that reflects both. But there’s another lever—one that doesn’t rely on earning more or waiting longer.

Imagine bringing an extra layer of reassurance to the table. If you have high-value liquid assets—like a diversified investment portfolio or a cash-value insurance policy—you may be able to offer additional security that reduces the lender’s perceived risk. This approach is often called “creative collateral,” and it’s best understood as using assets to strengthen the overall deal—not to disguise liabilities.

The core idea is simple: lending is a risk decision. When a lender believes repayment risk is lower, the offer can improve—sometimes through a lower rate, fewer fees, or more flexible approval standards. In some markets, added collateral can also reduce or avoid mortgage-insurance costs (where applicable), even when the down payment is below a traditional threshold.

Keith Gumbinger, a mortgage analyst, states, “Pledged-asset mortgages aren’t unheard of and appear in the market from time to time.” That matters because it signals this is not a fantasy concept—it’s a real structure used in specific circumstances, typically for borrowers with meaningful liquid reserves.

So what kinds of assets can support this approach? Lenders usually prefer collateral that is liquid, measurable, and stable. Eligible options often include investment accounts holding publicly traded securities, and in some cases, a cash-value component inside a permanent insurance policy. Instead of selling assets, the borrower keeps them invested while the lender places restrictions or claims that protect the loan agreement.

One common structure is securities-backed collateral connected to the mortgage. In practical terms, the lender may allow a portion of eligible portfolio value to be pledged, depending on asset type, concentration, and market volatility. The borrower typically retains ownership, but the account is effectively “locked” as a safeguard until certain loan conditions are met.

Another structure involves assigning the cash value of a permanent insurance policy as additional security. The policy remains active, but the lender may receive a defined claim on the policy’s cash reserve if the loan terms are breached. This can be useful for borrowers who have built up meaningful policy value and want to avoid liquidating investments.

A simpler option is a dedicated cash deposit or a fixed-term deposit used as security. This is straightforward for lenders because the value is clear and the liquidity is predictable. However, it can reduce flexibility, since that money is effectively earmarked for the lending relationship.

Who benefits most from this strategy? It tends to fit borrowers who are asset-rich but have uneven or non-traditional income patterns, such as business owners, commission-based earners, or people living off investments. It can also appeal to investors who want to avoid selling assets—and potentially triggering taxes or disrupting long-term portfolio plans—just to increase a down payment.

But this strategy has serious risks and should not be treated as “hands-off.” If pledged securities decline materially in value, the lender may require additional collateral quickly—sometimes on short notice. If the borrower cannot add funds, the lender may sell pledged assets under the agreement, potentially locking in losses. Also, some collateral-backed facilities can be callable depending on contract language, meaning repayment terms may be stricter than borrowers expect.

Before using creative collateral, treat it like a high-stakes financial engineering decision—not a shortcut. Work with an independent advisor and a mortgage specialist who has direct experience with collateral-backed structures. Stress-test your plan for a significant market downturn, and confirm you have liquidity reserves beyond the pledged assets. Then compare the projected savings against the loss of flexibility and the added risk you’re taking on.

If you have the assets—and the discipline to manage the guardrails—creative collateral can be a powerful way to improve mortgage outcomes without liquidating your long-term holdings. Just make sure the contract terms are as strong as the strategy sounds.