No-Money-Down Mortgages!

Kiplinger's Personal Finance Magazine, July, 1999 by Kimberly Lankford

* Fidelity customers can take a margin loan instead of paying cash.

Fidelity's marketing materials make its Pledged Asset Plan sound like a sweet deal: You take out a mortgage with its partner, GMAC, with no money down. Instead of cashing in stocks, bonds or mutual funds in your Fidelity account to come up with the down payment, you pledge your holdings as collateral. You get to leave your portfolio intact and put off paying capital-gains taxes.

While that could be a good strategy, there's a catch. Although you pay the interest rate attached to the mortgage, the down payment is secured by a margin loan. You can generally leverage up to 50% of the value of your account (other than a retirement account), but if the value falls, you may get a margin call. That is, Fidelity can ask you to send in more money or start selling off your investments. For example, if you pledged $50,000 for a down payment from a $100,000 account, Fidelity could ask you to pay up or sell securities if your account drops below $70,000. And, of course, your mortgage payment will be higher with no money down.

On the plus side, you can usually avoid private mortgage Insurance if you've pledged 20% of the value of your home. If you're buying a $250,000 home, you would need to pledge $50,000--meaning you would need a $100,000 account. Or you can mix and match--say, make a $20,000 cash down payment and pledge $30,000 from your account.

GMAC, which is offering fixed and adjustable mortgages, was recently charging 7% for a 30-year fixed-rate mortgage with one point. GMAC will also waive the application, document-preparation and other lender-controlled fees, which usually cost several hundred dollars.