… A lady on a fixed income had written you seeking your advice on this subject.  A couple of years ago I was considering a reverse mortgage because I was in a similar situation – asset rich, cash poor. Then I read an article from you on the subject of a collateral charge, and I watched your video on youtube and decided this was a better option for me. The reverse mortgage companies wanted me to draw out a minimum of $25,000 to start the account.

This was not the case with a collateral charge. I discussed it with a financial advisor who directed me toward Manulife One which is essentially a collateral charge product. After researching this, I applied and was approved for a Manulife One account whereby all my income and expenses come out of one account which has a line of credit attached to it. The line of credit they approved was approximately two thirds the value of my house.  More than enough for my future needs. I am not required to draw down any money, but the safety net is there if I need it. So far my account has not once moved into a negative position, and they are paying me interest every month on any positive balances in the account. They also issued me a Visa card and automatically pay it off every month from my ONE account, keeping any potential interest charges low should the cash not be in the account.

Your article and video opened my eyes to a product I have not only enjoyed but has given me peace of mind for the last couple of years. Please repeat this article for the benefit of others like this lady who was worrying about paying her bills.

Thank you,

Nicholas from Halifax.

Dear Nicholas, thank you for allowing me to share your email message. I couldn’t have said it better!

I have often talked about the benefits of a collateral charge and even though the interest rates are on the rise, I still feel this product is the best option for Canadians. Mortgages are the bank’s biggest money-making machines regardless of rate and amortization. The structure is the problem. Mortgages are calculated “semi-annually, not in advance” which means they adjust the interest twice a year and base it on the payment selection and amortization you have chosen. So, this means over the course of a 5-year fixed mortgage, interest is adjusted 10 times, (5 years multiplied by 2 times/year). This does not happen with a collateral
charge. A collateral charge is a “true pay for what you owe” type product adjusting the interest 12 times a year or each month when the balance changes after your regular payments. When comparing this to a 5-year term on a typical mortgage, the interest would have readjusted 60 times, (5 years multiplied by 12 times/year). Clearly, it is obvious that in a collateral charge the interest you are paying monthly is adjusted downward with each monthly payment you make. Each month, more money goes to principle and less to interest, unlike a fixed mortgage that is front-loaded and pre-set based on the 6-month/semi-annual calculation.

A collateral charge can be placed on your property for 100% and can then be broken into multiple segments all with different terms, rates and payments based on your needs and requirements. This product has no renewal, so once you place it on your property, you do not have to qualify again and you can keep it in place for as long as you own your home. The flexibility is what I like best, and you can apply for this product at most financial institutions. You can pay off a collateral charge at any time, draw it down again, mix it up into different segments for business or personal uses and even use it as a tax write-off in certain situations.

For the right type of client, it’s true freedom, allowing you to manage your money your way.

Good Luck & Best Wishes,

ATML - Christine Ibbotson