Let’s say you pledge your pension to support your mortgage on a home purchase.
Then later, you are unable to make mortgage payments. Can the bank force you to liquidate your pension to pay off the mortgage, or do they only get the money at retirement (when the pension is withdrawan) or something else?
Let’s assume the house value is less than the mortgage, so they cannot recover the full amount just by selling the house.
Well, yes, that’s the whole point.
I read somewhere (if only I could remember where!!), that it is not that straightforward for the bank to actually get to the money. I think banks have to really show that they did a proper risk assessment before giving the mortgage.
Considering real-estate price developments, I am not sure whether defaulting to the extend that the pledge is involved happens a lot these days. All can change during a crash/crisis of course…. Regardless, I have the feeling banks use it to partially get out of the 20% rule and that for them the gains are worth the risk they run.