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It’s never cut and dry: Toronto Star articles on mortgage changes and extra charges you should know about:
Apr 23, 2015
Here’s some helpful tips from two Toronto Star articles:
If you want to change lenders at the end of a mortgage term it could be restricted if you have a collateral mortgage. More lenders are issuing only "collateral" mortgages - TD Canada Trust and Tangerine sell only collateral mortgages.
If you have a mortgage and decide to transfer to another institution, the new provider will usually cover transfer fees. To switch a collateral mortgage you must hire a lawyer and pay about $1000.00 to discharge the mortgage before you can move to another lender.
Having a collateral mortgage affects your ability to transfer to another lender, your ability to borrow additional funds and can affect your ability to discharge the mortgage after repaying the loan in full.
With a conventional charge only the amount of the actual mortgage is registered against the house. With a collateral charge a lender may register a higher amount, often 100% or more of the property value, so if you need further funds in the future the security is there without having to discharge and re-register again.
You will need to reapply and be approved by the lender based on the current criteria of the lender, your ability to repay the mortgage loan and verification that the house value supports the mortgage loan.
The pitfall can be that if you need funds and your income is less, you may not qualify because the lender will base the payment on the amount registered which exceeds the amount you borrowed in the first place.
Any mortgage with any bank that has multiple products in one mortgage is also registered as a collateral mortgage. Customers need to know from their banker the affect a collateral mortgage will have and any key changes to the mortgage contract instead of the information in small print that most people do not read. You need to know if a lender is going to register a charge far beyond the amount you are borrowing.
Last August Finance Minister,Joe Oliver announced an agreement with 8 major banks, under which they would voluntarily disclose information about collateral mortgages on their websites by Sept.1 2014 and in their branches by Nov. 30 2014. If you check the websites there is minimal information. The Canadian Bankers Association's website has an article, "Mortgage Security" to which individual members can provide links.
Toronto Star’s Ellen Roseman predicts the trend to collateral mortgages will spread. Banks benefit by making it more difficult - or impossible in some cases- to switch lenders before a mortgage is discharged. It is up to the financial institutions to give full disclosure and keep clients informed.