Collateral mortgage security is the new norm amongst the chartered banks and they are convincing the consumers that they are doing you a favour by offering it to you.
Why a Collateral Mortgage?
• The bank can register a higher loan amount against your property so down the road if you need to borrow more, it can be quickly done.
• By registering a higher amount, no legal work is required and there are no legal fees on any further money you might need in the future.
• The collateral mortgage offers flexibility and terms that can be changed at any time.
The Fact the Bank won’t tell you:
• Unlike a traditional standard charge mortgage, the collateral mortgage is very difficult to move to another lender at end of term.
• A collateral mortgage severely restricts your ability to be a ‘free agent’ at the end of your mortgage term; shopping for a better mortgage rate cannot happen without significant legal costs and bank discharge fees
• Missed payment can result in an adjustment to your rate and terms (in the bank’s favour)
• Registering a higher amount on your home can restrict you from getting secondary financing – it eats up your equity in your home.
• The product is designed to keep you in debt as it encourages you to increase your borrowing limits over time