Consider a collateral charge

There are benefits to getting a collateral charge for long-term estate and financial planning. As an adviser to high-net-worth clients, I have always recommended setting up a collateral charge for every client regardless of their debt or savings situation.

A collateral charge is a financial planning tool secured against your primary residence for 100 per cent of its current value. It has no term or renewal and is fully open, extremely flexible and can mean complete freedom for the right client.

The reasons I want you to consider it are two-fold. If you have a mortgage, line of credit or consumer debt, placing it in a collateral charge structure will immediately fast-track the payoff since the interest is calculated so differently from any other loan format.

A collateral charge is a true “pay-for-what-you owe” product calculating the interest on the outstanding balance each and every 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 to 30 years and never have to qualify again. Hence 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 an unforeseen event (perhaps for a new car, home reno or an emergency) you now have it. The alternative could be applying for a bank loan at a time when it is difficult to qualify.

Your collateral charge never changes, nor does it expire. You could keep it for the next 20 years even with a zero balance, but if you need it, you can easily draw down what you need — meet your emergency requirements at that time and then put it back if you want to later.

When you retire, you still want to have access to credit if you need it and you never want to be put in a compromising situation. Christine Ibbotson is author of Don’t Panic: How to Manage Your Finances and Financial Anxieties During and After the Coronavirus and How To Retire Debt Free & Wealthy.