I was overwhelmed with the response from readers about the previous column I wrote on reverse mortgages.  There seems to be many Canadians considering this product as a way to inject the much needed funds into their later years of retirement.  Many of you had questions about other alternatives so I wanted to provide you with one that I believe would indeed be a better option: a collateral charge. 

The problem with a reverse mortgage is, you will often receive a portion of your home equity as a lump-sum to do with as you wish, with no need for repayment until you either sell your home or you die.  Many people view the lump-sum like a lottery win and because they haven’t been good with money in the past, often burn through it faster than they anticipated.  Remember, with a reverse mortgage, there are no payments made to decrease the principal debt or at the very least keep on top of the interest charges.  So, the debt grows quickly, especially with the help of a much higher interest rate than what is normal for a Canadian mortgage at your bank. 

A collateral charge is a financial planning tool secured against your primary residence for 100% of its current value.   It has no term or renewal and is fully open, extremely flexible, and for the right client – complete freedom.  It gives you access to a lot more equity than a reverse mortgage, the rate is much lower, and everything is fully transparent – meaning you now see what you owe, what the monthly commitment is, and because of this, most people become very aware of their on-going financial situation.   

Personally, I believe this product should be considered by all Canadians that own a home whether working or in retirement.  The reason is two-fold.  If you have a mortgage, a line of credit or consumer debt, placing it in a collateral charge structure will immediately fast track and payoff your debt faster, simply because the interest is calculated differently than any other loan format.  It is a “true pay-for-what-you owe product,” calculating the 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 20-30 years and never have to qualify again.  Hence the reason we recommend it for estate planning. 

When you are retired you are usually on a much lower income and if you need access to money for any unforeseen event,  you now have it.  So, instead of signing over partial title to get a reverse mortgage, you access your home equity through your collateral charge.  Your collateral charge never changes, nor does it expire.  You could keep it for many years with a zero balance, but when you need it, you can easily draw down the funds at that time.  When you retire you still want to have access to credit if necessary and you never want to be put in a compromising situation. 

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


If you’re interested in learning more about collateral charges, check out my Podcast episode on it, here:


Good Luck & Best Wishes, 

ATML - Christine Ibbotson