The Quick Read: A PAL, short for pledged asset line, is a credit line backed by your investment portfolio, and it is sized by the portfolio, not by the house. The mortgage on either side is sized by the home’s value, your credit, and the loan’s purpose. A purchase tends to suit a buyer who wants to keep portfolio holdings invested instead of selling them for the down payment. A cash-out refinance tends to suit an owner with real equity who wants to turn a line into a fixed loan, and that path asks for more equity and more seasoning.
Quick disambiguation first. “PAL” is not a mortgage term. It comes from the securities world. The line can fund part of a home purchase, or a cash-out can pay it off.
The “maintenance call” is the part that can bite. It happens when the portfolio drops and the line’s lender asks for more collateral. This article compares how the two mortgage paths sit around that risk. It does not give you a PAL advance figure, because no neutral source publishes one. The PAL lender sets it, and it varies with what you pledge.
Side-by-Side
Here is the comparison. The mortgage figures below are the ones that apply across the wholesale programs Lendmire places files with, and all are subject to lender guidelines and full file review.
| Factor | Purchase with a PAL | Cash-out with a PAL |
|---|---|---|
| Leverage, one-unit home | Up to 95% LTV (97% for first-time buyers) | Up to 80% LTV |
| Leverage, 2-4 units | Up to 95% LTV | Up to 75% LTV |
| Credit floor | 620 decision score on wholesale conventional | Same 620 floor; 680 on the 89.99% lane |
| Mortgage insurance | Required above 80% LTV | Generally none at 80%; none on the 89.99% lane |
| Occupancy | Primary, second home, or other | Primary gets the best leverage |
| Seasoning | None | First mortgage 12+ months; 6 months on title |
| PAL funds documentation | Source must be documented | Borrowed funds and liability still counted |
A few notes on that table. LTV means loan-to-value: the loan as a percentage of the home’s appraised value. The 97% purchase figure applies to a one-unit primary home with a fixed rate when a borrower is a first-time buyer, meaning no ownership in a residence over the past three years. The 89.99% cash-out lane is a wholesale option for a thirty-year fixed on a conforming-balance primary residence, with its own six months of seasoning. Conventional cash-out on second homes sits at 75%. Occupancy decides leverage, and that is all this article will say about rentals. Leverage, reserves, and pricing vary by lender and program; the final terms follow the full file review.
Notice what the table does not contain: any row where the PAL changes the appraisal. It doesn’t. The PAL changes how much cash you bring and what the underwriter counts.
Key Terms Defined
Pledged asset line (PAL): A revolving credit line secured by stocks, bonds, or funds in your investment account.
Maintenance call: A demand from the PAL lender to add collateral or pay down the line after the pledged portfolio falls in value.
Cure: Whatever you do to answer a call. That means adding collateral, paying down the balance, or selling holdings.
LTV: The mortgage balance divided by the home’s appraised value or price, shown as a percentage.
Seasoning: The time you have held title, or the time an existing loan has been in place, before a refinance is allowed.
Cash-out refinance: A new mortgage that pays off the old one and hands you the difference between the new balance and the payoff.
How a PAL Gets Sized Before Any Mortgage Enters
A PAL starts with the portfolio, not the house. The PAL lender looks at what you pledge, applies a lending percentage to each holding, and adds those up. That total is your borrowing limit.
Two things move that percentage. Diversified, widely traded holdings tend to earn a higher one. Concentrated or thinly traded holdings tend to earn a lower one. Advance percentages differ widely from one PAL lender to the next, so any single figure you read online is one lender’s number, not a standard.
Now the part that matters for a call. Lenders often set two values on a holding: a starting lending value and a lower trigger point, sometimes called a maintenance value. Your cushion is the distance between how much you borrowed and that trigger. Borrow near the limit, and a modest market dip can start a call. Borrow well under the limit, and the portfolio has room to fall.
The mortgage does not change that math. What it changes is how much you need to borrow in the first place. That is where purchase and cash-out part ways.
When a Purchase Is the Better Fit
A purchase is the better fit when the PAL is a bridge for part of the down payment, and you plan to keep the portfolio invested. It also suits a buyer who does not yet have equity in the home. Cash-out is not on the table until there is something to cash out.
Picture a buyer using the standard 5% down. They draw on a PAL for part of that 5% instead of selling shares. The mortgage is sized to the purchase price or appraisal, whichever is lower. The PAL only affects how much cash arrives at closing and how much stays in reserves. Terms vary by lender guidelines, property type, leverage, credit profile, and full file review.
The mortgage-side catch is documentation. On a purchase, the lender must document an acceptable source for large deposits used for the down payment, closing costs, or reserves, per Fannie Mae’s guidance on depository accounts. A PAL draw is borrowed money. Expect to hand over the line agreement and a current portfolio statement. The lender then checks that the borrowed funds are properly treated.
Here is how underwriting treats the asset itself. Under Fannie Mae’s rule on secured borrowed funds, the amount borrowed against an asset is subtracted from its value. Only the net counts as an asset. The guide uses a 401(k) and real estate as examples and does not name a brokerage PAL. The same logic is a reasonable expectation, but each lender confirms treatment file by file.
That matters for reserves. Reserves are the cash left after closing. A PAL-funded buyer can look comfortable on paper and still show thin net reserves once the borrowed amount is subtracted.
Mortgage insurance is the other purchase cost. Above 80% LTV it is required. You can ask to cancel it at 80% of the original value with good payment history, no second liens, and no decline in value. The servicer must end it automatically at 78%. A PAL is not a way around it. If you want the insurance gone sooner, a bigger down payment does that, with PAL money or any other source the lender accepts. Exact terms depend on the lender’s guidelines, property type, leverage, and a full review of the borrower’s file.
The risk on this path is timing. If a call arrives before closing, a forced sale can drain the funds earmarked for closing or reserves. That is a funding problem, not just a portfolio problem.
When a Cash-Out Is the Better Fit
A cash-out is the better fit when you already own the home, have equity, and want a single loan structure instead of a floating line. It also fits when the PAL balance is the thing you want gone.
Say an owner has a large PAL balance used for a renovation and plenty of equity. A cash-out refinance can pay off the line and replace it with a mortgage. Cash-out is the loan type where proceeds can go to the borrower or pay off debts. You can read more about the cash-out refinance programs Lendmire arranges through wholesale lenders.
Eligibility is stricter than on a purchase. Fannie Mae’s limited cash-out rules require at least one borrower on title at application, with exceptions such as inheritance or a legal award. For a primary-residence cash-out, Freddie Mac’s guide requires all borrowers to occupy the home. It also requires at least one borrower on title six months before the note date, again with exceptions.
On the wholesale programs I work with, the first mortgage being paid off must be at least 12 months old, counted note date to note date. Delayed financing, inheritance, and legal-award exceptions exist. Leverage usually tops out at 80% on a one-unit primary residence (the exception is the 89.99% cash-out lane, a wholesale option for a thirty-year fixed on a conforming-balance primary residence) and 75% on two- to four-unit homes and second homes.
Classification trips people up. A refinance that pays off a PAL with the proceeds is still a cash-out. Paying off a second lien that was not used to buy the home can also push a deal from limited cash-out into cash-out. Confirm the classification before you assume the leverage.
Documentation is lighter than on a purchase. On a refinance, Fannie Mae does not require explanation of large deposits. The lender still has to consider borrowed funds and any related liability. So the PAL balance does not disappear from the file just because the paperwork is thinner.
Cash-out is not free of tradeoffs. The CFPB notes that paying non-mortgage debts with mortgage debt can raise foreclosure risk. That is the honest flip side of swapping a call-prone line for a mortgage. You trade market risk for house risk. The new loan also resets the loan’s terms and can stretch your payoff timeline.
One more fit note. The streamline products, the FHA Streamline and the VA IRRRL, are not equity tools. They refinance an existing government loan and do not pay you cash, so they do not replace a PAL for liquidity.
What a Maintenance Call Does to Each Path
The same call hurts differently depending on when it lands.
FINRA lists three risks of securities-backed lines: a possible forced sale of holdings, tax consequences, and market volatility magnifying losses. Lender disclosures describe calls that can come with little or no notice. You may not control which holdings get sold.
On a purchase, the failure mode is a closing problem. A call before funding can shrink your cash to close or your reserves. The lender may re-verify assets late in the process. If the net value falls short, the file can stall or change.
On a cash-out, the failure mode is mostly gone once the loan funds and the PAL is paid off. If the PAL stays open, it is a post-closing risk. A call can force a sale while the mortgage keeps running. If the cash-out paid the line off, the call risk is removed, though the mortgage risk is now yours.
Cushion thinking works the same on both. Borrow less than the limit. Keep the pledged portfolio diversified. Keep some cash outside the pledged account. Watch the account when markets move, not after a notice arrives.
If a call comes, the usual cures are adding collateral, paying down the balance, or selling holdings. Selling can trigger a tax bill. Tax treatment can depend on your situation; borrowers should speak with a qualified tax professional before relying on any deduction or credit.
The Verdict
Neither option is “better.” They answer different questions.
Choose the purchase path when you are buying, want to stay invested, and can hold a real cushion on the line. Plan for documentation and keep extra funds outside the pledged account until closing.
Choose the cash-out path when you already own, have the equity and seasoning, and want to replace a call-prone line with a fixed mortgage. Accept that the home now carries the debt.
The honest middle case is a buyer who has a lot of portfolio but little cash. A modest PAL draw plus a larger down payment can reduce both mortgage insurance and the call risk. It can also be smarter to skip the PAL altogether if one bad market month would sink the plan. The stronger play is usually the one you can survive a downturn on.
If you are weighing a cash-out refinance against keeping the loan you have, Lendmire can help you compare the programs and the equity each one reaches.
Frequently Asked Questions
Is a PAL the same thing as a home equity line?
No. A PAL is secured by investments, while a home equity line is secured by the house. A PAL can be called when the portfolio drops. A home equity line has its own terms and risks. A lender treats the balance of either as debt when it reviews your mortgage file.
Can a cash-out refinance pay off a PAL?
Yes, in many cases. The proceeds can retire the line, and the deal is treated as a cash-out. That means the cash-out leverage, occupancy, and seasoning rules apply, subject to lender guidelines and full file review.
Does a PAL count as down payment money?
Sometimes, but not automatically. The lender wants the loan agreement and a current statement. The borrowed amount is subtracted from the pledged asset’s value. The draw itself needs a documented source on a purchase. Each lender confirms how it treats the line.
Does a maintenance call affect my mortgage once the loan has closed?
Not directly. A call is between you and the PAL lender. A forced sale after closing does not change a funded mortgage. It can, however, wipe out the reserves or cash you were counting on.
Do pledged assets still count as reserves?
It depends. Some pledged accounts have restrictions on how freely the assets can be sold. A lender may count only the net value after the line’s balance. Confirm with the lender before you rely on those funds.
For your own numbers, request a scenario review with Lendmire.
For current guidelines and terms, see Lendmire’s refinance programs page.
About Lendmire
Lendmire, NMLS# 2371349, is a mortgage brokerage with consumer lending licenses in 16 states. FHA, VA, conventional and jumbo purchase and refinance loans are arranged through wholesale lending partners, and each application is reviewed individually by the lender. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
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References
1. Fannie Mae Selling Guide B3-4.2-02, Depository Accounts
2. Fannie Mae Selling Guide B3-4.4-02, Requirements for Certain Assets in DU
3. Fannie Mae Selling Guide B2-1.3-02, Limited Cash-Out Refinance Transactions
4. Freddie Mac Guide 4301.5, Cash-Out Refinance Mortgages
5. CFPB
6. FINRA, Securities-Backed Lines of Credit
This article is part of Lendmire’s Refinance series — every loan program’s qualification details, guidelines, and scenarios live on the loan options page.
Related reading: Can a Cash-Out Refinance Pay Off a Money Partner Note Coming Due? · Can a Cash-Out Refinance Fix a Blanket Loan With No Release Clause? · How to Size a Cash-Out Refinance While Scaling From 2 to 10 Doors
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Disclosure information. Lendmire is a state-licensed mortgage brokerage under NMLS# 2371349. Lendmire is not a depository institution, direct lender, or financial advisor — all loans referenced are placed through wholesale lender partners and are subject to each lender's underwriting standards. This article is provided for general informational purposes and is not a commitment to lend, nor does it constitute financial, legal, or tax advice. Loan programs, terms, rates, and qualification standards change without notice and depend on borrower profile, property type, and the state in which the subject property is located. Equal Housing Opportunity provider. NMLS Consumer Access: nmlsconsumeraccess.org.