Curious about what a collateral charge mortgage is and why it’s different from a standard charge mortgage? You’re not alone! Before you jump to any conclusions about which option is better, take this opportunity to learn more about both so you can make the best decision for your personal needs.
What’s A Standard Charge Mortgage?
A standard charge only secures the mortgage loan that is outlined in the document. This means that it’s registered for the actual amount of your mortgage and doesn’t secure any other loan products you may have with your lender.
If you want to borrow more money in the future, you’ll need to apply and requalify for additional money and register a new charge which could lead to new costs (i.e. legal, administrative, discharge and registration fees). If you want to switch your mortgage loan to a different lender at the end of your term, you can simply assign your mortgage at no cost to you.
What’s A Collateral Charge Mortgage?
A collateral charge is basically a method of securing a mortgage or loan against your property. Unlike the standard mortgage mentioned above, a collateral charge is re-advanceable which means the lender can lend you more money after closing without you needing to refinance and pay a lawyer.
You can continue re-using this charge and will only require a new one if you want to borrow more than the amount that was originally registered. Most chartered banks offer both types of mortgages but there are a couple (like TD Bank and Tangerine) that solely register their mortgages as collateral charges. A collateral charge can be used to secure multiple loans with your lender. This means credit cards, car loans, overdraft protection and even personal lines of credit could be included.
What Are The Pros And Cons Of A Collateral Charge Mortgage?
| Pros | Cons |
|---|---|
| If you decide to borrow more money during the term of your mortgage, you can tap into your home’s equity without paying for a mortgage refinance. | There is often a cost to switching lenders when it comes time to renew. While this is an argument you’ll come across frequently online, it isn’t always factual. It’s a very competitive market so if you’re still considered strong borrowers when you’re looking to switch, chances are someone will be willing to eat the costs if you move to them. |
| If you have a mortgage AND a home equity line of credit (HELOC), you can set things up so that every time you make a mortgage payment, the amount you pay toward your principal balance is added to your HELOC. This means you expand the amount of your available credit. As long as you’re choosing to use it wisely, this is a definitely a plus. | There’s a chance you may be offered less competitive rates when it comes time for renewal because you’re staying with your current lender instead of looking for another. Again, if you’re a strong borrower, it’s likely that someone is going to offer you lower rates and your current lender may even price match competitors to keep you on board. |
| You may readily access contingency funds at no cost down the road (increasing your mortgage loan, adding a line of credit to the mix etc.) | If your personal finances take a hit down the road or you no longer qualify for additional financing through your current lender, then a high collateral charge may make it more difficult to find secondary financing elsewhere. |
Where Do You Go From Here?
As more lenders begin to adopt collateral charge mortgages, it’s important that you have a good understanding of what they are, how they work and what makes them different than standard charge mortgages. While most of the time it may not matter to you how your mortgage is registered, there are a lot of secondary factors to consider before choosing which charge is right for you. Get in touch with us today and let’s work on creating a mortgage plan that’s right for YOU!