Mortgages are an important component to your overall financial strategy and can be used for multiple purposes such as acquiring a home or investment property, refinancing existing loans, financing home improvements, and even consolidating debt. But the process can be complicated and not all mortgages are the same. Just like your home, your mortgage financing should be personalized to meet your unique needs. What tools do you need for a successful purchase or refinance that will have lasting impacts for years to come?

Selecting the Product

When selecting a home lending product, it is important to align your mortgage with your overall wealth plan. There are a variety of solutions that account for considerations such as, cash flow management, expected time in home, and risk tolerance.

“For many, real estate is the biggest purchase they’ll ever make. Financing real estate is a long-term decision, with long-term impacts to wealth,” said Jon Kessler, head of Credit and Cash Management for PNC Private Bank®. “Mortgages aren’t a one-size-fits-all solution, and understanding the products and process is an important part of building and protecting wealth in the long run.”

Within a standard mortgage, you will need to determine whether you want a fixed or adjustable-rate mortgage, standard or interest-only payment structure, and the term of the loan. Those factors will be dependent on your cash flow needs and how long you plan to own the property.

Pay attention to the process

While selecting the right product is important, so too is how a mortgage is structured. The structure of your mortgage can have a lasting impact on your overall financial strategy. How you structure the ownership of your property can help protect your privacy, safeguard against potential liabilities, and assist in planning for future generations by streamlining estate management. Beyond traditional individual or joint ownership structures, you may consider the potential benefits of owning a property in the name of an entity such as a trust or Limited Liability Company (LLC).

One challenge borrowers – and particularly high-net worth borrowers can face – is the complexity high-value loans and non-traditional income sources can add to the underwriting process. It’s important to consult your advisor and lender on the loan approval process and additional document collection, and review what may be necessary to secure the loan at the most favorable terms for your unique needs.

“Paying attention to product and process-specific impacts of real estate financing is incredibly important, especially for wealthy borrowers because of the complexity of high-value loans,” Kessler said. “For some, the solution may be something other than a traditional mortgage.”

Alternatives to a traditional mortgage

Depending on your financial goals and liquidity situation, there are alternative products you can explore to finance real estate or access liquidity in your home:

  • Pledge mortgage:
    Beyond the traditional home lending products, pledge mortgage solutions allow borrowers to finance a home with a lower — or even no — down payment. By pledging marketable securities in lieu of a down payment, buyers can secure a mortgage with up to 100% financing while remaining fully invested in the market. With this solution, you can keep your investment strategy intact and manage potential tax impacts that may result from liquidating investments for a down payment on a home. You can continue to buy, sell, and trade securities within the pledged account, continuing to earn dividends and interest.
  • Delayed financing:
    When purchasing in competitive real estate markets, homebuyers may have an advantage as a cash buyer. There are options outside of a traditional mortgage such as a line of credit that can help you generate the liquidity necessary to purchase in cash. Additionally, you can consider a cash out refinance, which allows you to pay for a home in cash and retrieve equity, all while being afforded the benefits of purchase pricing and underwriting guidelines. The delayed financing solution can be paired with a Securities Based Line of Credit (SBLOC) to serve as the liquidity source for the bridge financing.
  • Home equity:
    In addition to a mortgage, a Home Equity Line of Credit (HELOC) may serve as an alternate way to access liquidity in your home. A HELOC is a revolving line of credit that uses your home as collateral. This variable rate product is interest-only over the first 10 years (during the draw period), followed by a 20-year principal repayment period.

Debt as part of a wealth plan

Many investors focus on growing their net worth by managing the asset side of their personal balance sheets. However, optimizing the liabilities side of their balance sheets can be just as important when trying to achieve financial goals. Using debt as part of an overall wealth strategy may help investors maintain and grow their net worth. Additionally, investors with mortgage or investment loan interest may qualify for significant tax deductions, which may reduce the net cost of borrowing and potentially extend investment portfolio growth.

“There are many considerations to weigh when structuring debt as part of a tax-efficient investment strategy,” Kessler said. “It is important to consult with your tax and financial advisors to optimize potential tax benefits and assist in structuring your liabilities as part of a broader wealth management plan.”