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December 9, 2016

Understanding the “Collateral Charge” Mortgage

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What is a collateral charge mortgage?  Here’s how it works: the bank registers the mortgage for more than the value of the home at closing.  So if you have a $400,000 mortgage and a $700,000 home, the bank will register a charge up to $875,000.  This has several side-effects, including locking you in to the lender, their limited products an their rates.

We’re not big fans of the collateral charge mortgage – because we’re all about keeping your options open. Collateral charge mortgages are very difficult to transfer to another lender. So you might see a great rate or mortgage feature at another lender, but it’ll cost you to switch.  Generally, you would need to start from the beginning of the process all over again, including time and paperwork, and pay new legal fees.

There are some lenders who only offer collateral charge mortgages, with catchy marketing terms they like to use at the branch.  And there are some lenders who offer a choice, as many consumers are now deciding against being trapped by their bank.  The days of long term contracts are going away in many aspects of our lives and that is a consumer-driven evolution.  While it may be advantageous to be in a 5 year contract with your lender there are certain aspects of the contract you can control, and the collateral charge is one of the most important.

The reason so many Canadians are choosing independent mortgage brokers is for choice and expertise. We don’t believe that lenders should tie the hands of home buyers. Not sure what your lender has offered you, or want a second opinion?

Contact us today and we can discuss the many options available to you.  250-483-5558.

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