PLEDGED ACCOUNT MORTGAGE (PAM)


Pledged Account Mortgage (PAM) is a type of home purchase loan under which a sum of cash contributed by the owner is set aside in an account pledged to the lender.

The account is drawn down during the initial years of the loan to supplement periodic mortgage payments. The effect is to reduce the payment amounts in early years.

PAMs differ from traditional mortgages. Instead of making a down payment, money is deposited in a pledged, interest-bearing account with a lender. When assets are pledged as collateral, the borrower grants the lender a security interest in those assets for the loan’s duration. This means the lender has a legal claim on the assets until the loan is repaid. The borrower still keeps earning interest or dividend gains on the assets. And in most cases, the borrower can trade or sell the pledged assets during the loan term only with the lender’s permission. But that’s not likely to happen. The lender wants to ensure the assets remain available as security for the loan until it is paid off. Terms can vary among lenders, so heed any restrictions and requirements for trading or selling the pledged assets.

In summary, Pledged Account Mortgage (PAM) is a type of home purchase loan under which a sum of cash contributed by the owner is set aside in an account pledged to the lender. The account is drawn down during the initial years of the loan to supplement periodic mortgage payments. PAMs differ from traditional mortgages. Instead of making a down payment, money is deposited in a pledged, interest-bearing account with a lender. When assets are pledged as collateral, the borrower grants the lender a security interest in those assets for the loan’s duration. The borrower still keeps earning interest or dividend gains on the assets. And in most cases, the borrower can trade or sell the pledged assets during the loan term only with the lender’s permission.


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