Skip to main content

What are collateral loans and what is the differentiates them from a regular mortgage?

Image
By
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
Labels:
Location: 1596 3rd Avenue, Prince George, BC V2L 3G4, Canada

Comments

Post a Comment

Popular posts from this blog

Who is Computershare and why are they registered on title?

By
If you are using a non-bank lender for your mortgage, you may notice that your mortgage has been registered in the name of “Computershare Trust Company of Canada”. This registration does not affect the terms and conditions of your mortgage in any way. Computershare holds no beneficial interest or rights to the mortgage loan. This is merely a third party, custodial arrangement which means that your lender has used Computershare to review the mortgage and provide custodial certification to Canada Mortgage and Housing Corp (CMHC) for their government securities program. Computershare is the largest provider globally of many of the services they offer and the largest corporate trust service provider in Canada. They have successfully provided this custodial service to many Canadian bank and non-bank lenders for many years and they play a very important role in the Government of Canada’s NHA Mortgage-Backed Securities Program. Computershare has served as the exclusive Central Payor and Tr...
28 comments
Read more

When is an appraisal required?

By
In mortgage financing, appraisals are required to confirm the value as well as the condition of a property. Here are the most common scenarios where they could be required: Private sales Unique properties (log homes, mobile homes ext) Non-arms length transactions (ex between family members) Acreages and/or rural properties (or properties with large outbuildings or animals) Properties where there could be structural issues (ex MLS listings referring to "handyman special" ext") Refinances or renewals Conventional mortgages (or for those putting 20% or more down) Rental properties New construction  Some lenders will rebate the cost however you should budget to have the funds available. Most banks who "cover" the cost, simply charge it back to you at closing. As the mortgage lending landscape tightens, we have been seeing more requirements for appraisals so it is best to be prepared in case one is required. www.christinebuemann.ca
15 comments
Read more

How to Save Thousands On Your Mortgage Renewal

By
What could you do with an extra $15,000? If I were to offer you a cheque for $15,000 or even $2300 in exchange for a few documents would you turn in down because it was easier to simply renew your mortgage at your current lender? There are numerous published reports that confirm that most borrowers simply sign and return their bank's offer letter upon their mortgage renewal. More often than not, the rates they offer you are not the lowest available rates and they are definitely not as low as a Mortgage Broker could get you. If you take it upon yourself, you may very well be able to negotiate a better rate with them but how will you know if it is the best you can get? Here is an example… If your lender is offering you 4.24% for a 5 year fixed on a $250,000 mortgage* you would be paying roughly $15,600 more in interest than the standard 2.89% that most brokers are offering for the same term.    Now let’s say you negotiated with your lender and they were willing to drop you...
4 comments
Read more