WHAT IS A COLLATERAL CHARGE MORTGAGE?

collateral charge mortgagesYour mortgage gets registered with the Land Title Office in one of two ways: a standard charge or a collateral charge.  This post will focus on the latter. So what exactly is a collateral charge mortgage?

Most Banks and Credit Unions use collateral charge mortgages.  Monoline lenders, on the other hand, typically register your mortgage as a standard charge.  A collateral charge mortgage is an all-indebtedness charge that allows you to access the equity in the home over and above your mortgage, up to the total registered charge.

For example, let’s assume you bought a new home for $450,000 and you put down $100,000 as your down payment.  This would leave you with a mortgage of $350,000.

  • A standard charge registers your mortgage for the exact amount of $350,000
  • A collateral charge allows you to register the mortgage up to a maximum of 125% ($562,500) of the value of your home

Registering your mortgage for more than you owe, doesn’t mean you owe more.  It simply allows you to access the equity in your home by adding to your existing mortgage balance or through a home equity line of credit. (HELOC)  This is a benefit because there are no costs to re-register your mortgage with the Land Title Office.  The typical cost is $750-$1000 to do this with a standard charge mortgage.

NEGATIVES OF A COLLATERAL CHARGE MORTGAGE

Sounds awesome, why wouldn’t you do this?  Well, there are a few negatives to consider as well.

  1. A collateral charge is an “all indebtedness” mortgage.  It brings any other debts with that same specific mortgage lender under the umbrella of the registered security against your home.  In other words, cosigning a credit card or auto loan for someone who stops making payments with the same lender as the one holding your mortgage can ultimately result in a foreclosure notice.
  2. If you want to transfer your mortgage to a new lender at renewal for a better rate, they may not accept your collateral charge mortgage.  This means you will need to pay a Notary or Lawyer to re-register your mortgage with your new lender.  This can cost you up to $1000.

To recap, a collateral charge mortgage gives you the flexibility to combine multiple mortgage products under one umbrella.  It allows you to access the equity in the future without the costs or re-registering your mortgage for the new amount. A collateral charge mortgage can be a great tool when used correctly, it does have some negatives discussed above.

If you have any questions about how your mortgage is registered, reach out to Brent Shepheard.  Dominion Lending Centres have access to over 50 Lending partners ensuring we have the right mortgage for you.