Know Your Mortgage: Collateral Vs. Standard Charge Mortgages

collateral vs standard Mortgage

More lenders are moving to collateral charge mortgages so it’s becoming increasingly important to understand the differences between a collateral and standard charge mortgage. 

Which is better for you?

They both have advantages and disadvantages so it all depends on your preferences and future needs. It’s important to understand those differences so you can make sure you get the mortgage that best fits your long-term goals.  

Collateral Charge Mortgage

  • Only option available at nearly all major banks and some lenders (ex. TD, RBC, ING, BMO, National Bank etc.)
  • Advantage if you want to be able to access your equity (but only up to 80%) for debt consolidation, renovations or investments without legal fees (rate may be higher than original, need to qualify)
  • Your mortgage is registered for the same or MORE than your property value; 100% at some 125% at most which is how you can access why you can access your equity.
  • Will affect your negotiating ability with your lender at renewal. Because of cost to switch and move mortgage 
  • It is more difficult to switch lenders without getting a new mortgage and paying legal fees from $500-$1000. Some lenders will not assume a collateral mortgage.
  • More difficult to get a second mortgage unless your home significantly in value.
  • Lender may be ale to seize equity to cover other debts with that same lender.

Standard Charge Mortgage

  • Available at most non-bank lenders and credit unions.
  • Ideal if you wont need to refinance your mortgage during your mortgage term.
  • Ideal if you want to have the ability to easily and cost effectively move from lender to lender at renewal. 
  • Offered by majority of lenders. Some offer both – standard charge mortgages and HELOCs that are often a collateral charge. You choose the option that best meets your needs.
  • If you need to borrow more, you have the option of a second mortgage or line of credit.
  • You are not as tied to your lender for your full amortization period; it’s easier to switch lenders at renewal with little or no cost; keeps your options open.

Summary

It's important to consider all options when looking at any mortgage financing, but it's even more important to understand all of the risks involved with any decision. Most major banks only offer strictly collateral mortgages without highlighting the negative points of which there are many. Do your research, and more importantly speak to an independent broker who can make sure that you get the right mortgage type (standard or collateral) with the rate and features to match your needs now and in the future.