What is the purpose of a Pledged Account Mortgage (PAM)?

What is the purpose of a Pledged Account Mortgage (PAM)?

• A. To pay off credit card debt
• B. To gradually reduce mortgage payments from savings
• C. To secure a loan with collateral
• D. To fund home renovations

Answer: (B)

A Pledged Account Mortgage (PAM) is designed specifically to allow a borrower to set aside a certain amount of money in a savings account that can be used as collateral for the mortgage. This savings account is typically pledged to the lender, which reduces the lender's risk and can, in turn, lower the borrower's interest rate. The key purpose of the PAM is to enable the borrower to benefit from having a lower mortgage payment over time as the funds in the pledged account gradually offset the amount owed on the mortgage. This option provides a systematic approach to reduce the mortgage loan balance, aligning well with the concept of gradual reduction of mortgage payments through savings. This structure is different from simply paying off credit card debt, securing a loan with collateral in a broader sense, or using funds for home renovations. The primary function of a PAM is to leverage savings as a method to manage and potentially lower mortgage payments as they progress, making it a unique financial tool in mortgage lending.

A Pledged Account Mortgage (PAM) is designed specifically to allow a borrower to set aside a certain amount of money in a savings account that can be used as collateral for the mortgage. This savings account is typically pledged to the lender, which reduces the lender's risk and can, in turn, lower the borrower's interest rate. The key purpose of the PAM is to enable the borrower to benefit from having a lower mortgage payment over time as the funds in the pledged account gradually offset the amount owed on the mortgage. This option provides a systematic approach to reduce the mortgage loan balance, aligning well with the concept of gradual reduction of mortgage payments through savings.

This structure is different from simply paying off credit card debt, securing a loan with collateral in a broader sense, or using funds for home renovations. The primary function of a PAM is to leverage savings as a method to manage and potentially lower mortgage payments as they progress, making it a unique financial tool in mortgage lending.