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The Pros & Cons of Collateral Charge Mortgages | Scott Dawson
(778) 668-9320 [email protected]

Mortgages can be confusing to consumers. While rate is very important, there’s more to consider when choosing a lender and choosing between a Standard and Collateral charge mortgage is one consideration clients shouldn’t take lightly.

TD Canada Trust is the most recent lender that has changed their mortgages to a Collateral Charge. There are big differences between a standard and collateral charge mortgage which consumers need to be made aware of.

What is a collateral charge mortgage?

A collateral mortgage is loan attached to a promissory note and backed up by the collateral security of a mortgage on a property. Collateral mortgages aren’t new in Canada. Typically a collateral mortgage is registered for a secured line of credit, allowing the balance of the loan to float up or down depending on the customer’s use.

TD’s Collateral Mortgage allows you to register up to 125% of your properties value.

A Collateral Charge mortgage makes it easier for you to tap into their equity of your home if property values rise, although making it considerably more difficult to switch your mortgage to another lender when your mortgage is up for renewal.

While there is some positives with choosing a Collateral Charge lender I believe the Cons outweigh the Pros. When discussing your mortgage options you need understand the differences and think ahead to make sure it’s a good choice for your personal situation.

A Collateral Charge Mortgage might be for you if:

  • Want a secured line of credit with your mortgage.
  • There’s a high probability you’ll need to refinance during your term.
  • You don’t intend to shop around at maturity for a mortgage with better terms & rates. Switching lenders will incur legal fees even at maturity.
The theory behind a Collateral Charge Mortgage is that it will allow the borrower to refinance at a future date or switch lenders at renewal time without having to pay legal fees, saving the you about $750 to $1000. However, you need to be aware that the the lender may not offer you the absolute best deal if they know it will cost you $750 to $1000 to leave them.

A Standard Charge would more suit your needs if:

  • You don’t anticipate the need to refinance during your term.
  • You like to shop at maturity for the best mortgage offerings from all other lenders.
  • Don’t want to pay legal fees if you switch lenders (even at maturity)

If you would like more information on collateral and standard charge mortgages and how they could potentially impact your personal situation don’t hesitate to contact me anytime or leave a comment.