What are collateral mortgages and what is the differentiates
them from a regular mortgage? CBC’s
Marketplace recently did a story on how TD only offers collateral mortgages
and this has sparked a lot of conversation about the topic.
The main difference is how they are registered. When you receive a conventional mortgage, it is registered on title for the actual amount of the mortgage. A collateral loan is registered for higher amount, usually for the purchase price amount.
The advantage to having the higher amount registered is that you are able to access the funds easier should you choose to refinance before the term is up. You would have to qualify for the increase in funds, but you would generally avoid paying legal fees for the transaction.
There are several disadvantages but the largest one is how many people feel “trapped”. Most lenders will not accept transfers in upon renewals from collateral loans so you are usually stuck with that lender until you are able to refinance. Keep in mind that you need at least 20% equity in your home now to refinance in Canada now. Switching lenders at renewal generally has very minimal (if any) cost. This provides you with the opportunity to find the best rate and terms to fit your needs at that time. If you have a collateral mortgage, you are usually stuck paying whatever rate they are offering you or attempting to negotiate a reduction. Most major banks are currently offering 3.29% for a 5 year fixed. You can easily get 3.09% with another lender and that would save you just over $2300 in the term.
There are several other great articles on the topic that I suggest reading as well. Please feel free to contact me with any questions.
http://www.moneyville.ca/article/1032150--beware-the-pitfals-of-collateral-mortgages
http://www.canadianmortgagetrends.com/canadian_mortgage_trends/2013/01/td-takes-heat-for-its-collateral-mortgages.html
www.christinebuemann.com
The main difference is how they are registered. When you receive a conventional mortgage, it is registered on title for the actual amount of the mortgage. A collateral loan is registered for higher amount, usually for the purchase price amount.
The advantage to having the higher amount registered is that you are able to access the funds easier should you choose to refinance before the term is up. You would have to qualify for the increase in funds, but you would generally avoid paying legal fees for the transaction.
There are several disadvantages but the largest one is how many people feel “trapped”. Most lenders will not accept transfers in upon renewals from collateral loans so you are usually stuck with that lender until you are able to refinance. Keep in mind that you need at least 20% equity in your home now to refinance in Canada now. Switching lenders at renewal generally has very minimal (if any) cost. This provides you with the opportunity to find the best rate and terms to fit your needs at that time. If you have a collateral mortgage, you are usually stuck paying whatever rate they are offering you or attempting to negotiate a reduction. Most major banks are currently offering 3.29% for a 5 year fixed. You can easily get 3.09% with another lender and that would save you just over $2300 in the term.
There are several other great articles on the topic that I suggest reading as well. Please feel free to contact me with any questions.
http://www.moneyville.ca/article/1032150--beware-the-pitfals-of-collateral-mortgages
http://www.canadianmortgagetrends.com/canadian_mortgage_trends/2013/01/td-takes-heat-for-its-collateral-mortgages.html
www.christinebuemann.com
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