Pledge
A security over a financial asset, life insurance, securities account, savings, earmarked to repay the loan without transferring ownership. Widely used in bullet-loan structures and for wealthy profiles with mobilizable savings. It avoids the costs of a real-property guarantee.
Key points
- Security over a financial asset (life insurance, securities account) without transferring ownership.
- Primarily used in bullet-loan structures for wealth-management client profiles.
- Avoids notary-fee costs of a mortgage and its subsequent release.
- The lender holds a preferential right over the pledged sums in the event of default.
Frequently asked questions
How does pledging a life-insurance policy work?
The borrower signs a guarantee-assignment rider on their life-insurance policy, notified to the insurer. In case of default, the bank can request a partial or full surrender without needing to pursue the property itself. The policy continues to grow in value during the loan term, which benefits wealth-management profiles.
What is the difference between a pledge and a mortgage?
A mortgage is secured against real property and requires a notarized deed registered with the land registry, generating significant fees. A pledge is secured against a movable or financial asset, is set up more simply, and costs far less. However, a pledge assumes the borrower holds sufficiently liquid savings to cover the risk.
What mistakes should be avoided when setting up a pledge?
The first mistake is to underestimate the fluctuating value of the pledged asset: if a securities portfolio drops, the guarantee may become insufficient and the bank may call for a top-up. It is also necessary to verify that the pledged contract actually permits such an assignment, particularly unit-linked life-insurance policies with surrender charges.
In practice
A doctor takes out a €300,000 bullet loan over 10 years for a buy-to-let investment. Rather than a mortgage, he pledges his €350,000 life-insurance policy to the bank, saving notary deed fees while retaining full management of the contract.
Official sources
- Article 2355 of the Civil Code (definition of pledge) · Légifrance
- Mortgage credit (official guide) · Service-Public.gouv.fr
- Housing and financing information · ANIL