Did you know some lenders register all their mortgages as collateral charges – including major banks like TD?

If you’re refinancing, renewing, or applying for a new mortgage, this detail could affect how easily you access your home equity or switch lenders down the road. Yet many borrowers only learn about this after the fact – sometimes too late to make an informed decision.

As a mortgage broker, I often speak with clients who are hesitant about collateral charge mortgages – usually because of something they’ve read online or heard from others. There’s a lot of confusion and misinformation out there, and my job is to help you cut through the noise so you can make a confident, informed decision that aligns with your goals.

Standard vs. Collateral Charge Mortgages

Standard Charge Mortgage

A standard charge mortgage registers only the loan amount you’re borrowing – nothing more. It’s simple and straightforward. If you want to borrow more later (say, for renovations), you’ll need to refinance, requalify, and pay legal fees to register a new mortgage.

This type of mortgage is also easier to switch to a new lender at renewal, which can give you more flexibility and negotiating power.

Collateral Charge Mortgage

A collateral charge is more flexible but also more complex. It allows the lender to register a higher amount than the initial loan, sometimes up to 125% of the appraised property value. While you’re only borrowing a portion of that now, the remaining amount acts as potential borrowing room in the future.

Generally, lenders will allow access to additional funds up to 80% of your home’s value, as long as you meet their requirements. You may be able to access those funds without refinancing, but you’ll still need to qualify based on the lender’s standard criteria at that time.

Some lenders even structure these mortgages so your HELOC limit increases as you pay down your mortgage principal.

Pros and Cons of Collateral Charge Mortgages

Pros

1. Flexible access to additional funds: You can borrow more money in the future without having to refinance your entire mortgage, saving you time and legal fees.

2. Long-term relationship benefits: If you plan to stay with the same lender, a collateral charge mortgage allows you to tap into your home equity more easily as your needs change.

3. Cost savings on accessing funds: Since the mortgage charge is already registered for a higher amount, you can avoid additional legal and registration fees when you access extra funds later on.

Cons

1. Harder (and costlier) to switch lenders: Unlike standard charges that can often be transferred easily, switching a collateral charge usually means discharging your mortgage and registering a new one. That involves legal work.

2. Potentially limited borrowing options from other lenders: Some lenders register up to 125% of your home’s value, which could block you from accessing financing elsewhere – even if you have lots of equity.

3. Right of offset risk: Some banks may have the right to use your home equity to recover money you owe them on other financial products – like credit cards or personal loans. It’s rare, but something to be aware of.

Final Thoughts from a Broker

Collateral charge mortgages are neither good nor bad – they’re just different. The key is understanding how they work and how they fit into your long-term plans.

If flexibility is a priority, they can be an excellent choice. If lender portability and easier switching are more important, a standard charge might serve you better.

Still unsure? Let’s talk through your options. I’ll help you weigh the pros and cons based on your unique situation -so you can make a confident, informed decision.

Did you know? As your mortgage broker, I can assist you in switching your collateral charge mortgage to another lender, help you avoid the risks associated with the right of offset, and work to save or eliminate fees during the switch process.

Ready to explore your options? Contact me today for a free consultation!