Interest charge

MONEY: Why not consider a collateral charge on your home?

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I was overwhelmed with reader response to my reverse mortgage column. It would seem that many Canadians are looking to this product as a way to inject much-needed funds into their later retirement years.

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Many had questions about other alternatives, so I wanted to offer you one that I think would indeed be a better option: an accessory filler.

The problem with a reverse mortgage is that you will often receive some of the equity in your home as a lump sum to use as you wish, without needing repayment until you sell your home or die.

Many people view the lump sum as a lottery win and, because they haven’t been good with the money in the past, often burn it faster than they expected.

Remember that with a reverse mortgage, no payments are made to reduce the principal debt or, at the very least, to keep the interest charges under control. So the debt grows quickly, especially with the help of a much higher interest rate than is normal for a Canadian mortgage at your bank.

But a collateral charge is a financial planning tool guaranteed against your principal residence at 100% of its current value. It has no term or renewal and is fully open, extremely flexible and for the right client – offers complete freedom.

It gives you access to much more equity than a reverse mortgage, the rate is much lower and everything is fully transparent – ​​meaning you now see what you owe and what the monthly commitment is. And because of this, most people become very aware of their current financial situation.

Personally, I believe this product should be considered by all Canadians who own a home, whether working or retired.

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The reason is twofold. If you have a mortgage, line of credit, or consumer debt, putting it into a collateral charge structure will immediately accelerate and pay off your debt faster, simply because interest is calculated differently than any other loan format. It is a “true pay-for-what-you-ow” product, calculating interest on the outstanding balance each month.

The other reason to consider this product is that it has no term or renewal. So if you were to get it today, you could keep it for the next 20-309 years and never have to qualify again.

Hence why we recommend it for estate planning.

When you are retired, you usually have a much lower income and if you need access to cash for any unexpected event, you have it now. So instead of giving up partial title to get a reverse mortgage, you access the equity in your home through your collateral charge. Your warranty fees never change or expire. You can keep it for many years with a zero balance, but when you need it, you can easily withdraw the funds at that time. When you retire, you still want access to much-needed credit and you never want to be put in a compromising position.

When planning for the future, it is sometimes a good idea to organize things well so that you have options and freedoms that ensure your comfort, dignity and security as you age.

Written by Christine Ibbotson, national radio host and author of three books on finance as well as the Canadian bestseller, How to Retire Debt Free & Wealthy. For more information, visit or send a question to [email protected]