Collateral Charge
Definition
A collateral charge is a way of registering a mortgage that secures more than the current loan amount, allowing the lender to lend you more later without a new registration.
How it works
A standard charge registers exactly what you borrowed and is readily transferable to another lender at renewal. A collateral charge is often registered for up to 125% of the property value, which makes future borrowing easier with that lender.
The trade-off appears at maturity. Because the charge secures all your obligations with that lender, moving to a competitor generally requires discharging and re-registering the charge, which adds legal cost and friction that a standard charge switch avoids.
Collateral charges are standard for HELOCs and readvanceable products and are used by several major lenders for regular mortgages too. They are not inherently bad — but you should know which one you are signing.
Quick facts
- Can secure up to 125% of the property value.
- Makes future borrowing with the same lender easier.
- Switching lenders later usually costs more than a standard charge.
Put this into practice
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