Collateral Charge Mortgages

When you apply for a mortgage with a lender, they will only lend you the exact amount you need to complete the purchase of your property. Later, if your property increases in value and you want to borrow more money because you now have more equity, you would typically need to refinance your mortgage and have the loan amount changed, resulting in more legal fees and costs to you, the borrower.

When you have a collateral charge, a lender is still only going to advance you the amount you need, but it will be registered at a higher amount so that later, if your property’s value does increase and you want to borrow more money against the security of your home, you will NOT need to refinance and pay for legal fees. The lender can loan on the difference between the original home value and the new home value (assuming the mortgage was registered at an amount equal or greater than the new value). This will save you the cost of paying a solicitor to re-register your mortgage (approximately $1,000). The catch is your options to switch lenders is somewhat limited as many lenders will not accept collateral charge mortgages.

This isn’t anything and everything on collateral charge mortgages, but what it does allow you to do is understand what their main purpose is. If anyone asks you whether you would want the charge or not, now you’ll know.

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