A collateral charge mortgage, sometimes referred to as a readvanceable mortgage, is a type of mortgage where the lender registers 100% or more of the property value when securing the mortgage. This allows you to borrow more money in the future without your lender needing to register additional charges against the property.
For example, if your mortgage amount is $500,000, your lender might register 125% of the amount, a $625,000 mortgage, with the land registry or land title office. Having a larger amount registered doesn’t mean that you owe this larger amount. In this example, even though a $625,000 charge is registered on the property’s title, you currently only owe your lender $500,000.
Just because it has already been registered for a greater amount doesn’t mean you’re automatically approved to borrow more money in the future. Instead, it means that as you pay off your mortgage and your home equity increases, or as your property value increases, you can then borrow from your home equity using the same original charge when you got your mortgage, up to the amount registered. This makes it easier to borrow from your home equity, such as with a home equity line of credit (HELOC). You’ll still need to apply, and your lender still needs to approve your application.
The RBC Homeline Plan is a combined mortgage and home equity line of credit that allows you to consolidate your debts with a low interest rate. When you make mortgage payments, the credit limit of your line of credit increases. You can borrow up to 65% of your home’s appraised value through the line of credit.
TD only offers collateral charge mortgages. TD Home Equity FlexLine is a home equity line of credit that has two parts, a revolving portion and a term portion. As you pay off more of your balance, it will increase the available credit for you to draw from.
The CIBC Home Power Plan is a collateral mortgage with a HELOC where you unlock more credit as you pay off your mortgage. You can borrow as little as $10,000 and up to 80% of your home's equity.
The BMO Homeowner ReadiLine is a collateral mortgage with a HELOC that allows you to borrow up to 80% of your home value. Portions borrowed above 65% of your home value will have to be paid in amortizing installments (interest + principal). Payments toward your mortgage balance will increase your HELOC’s available credit.
The Scotia Total Equity Plan (STEP) lets you link your mortgage and a personal line of credit into one product. Your available credit under STEP will automatically increase as you pay down your mortgage. You can also have three different mortgage terms and rates under STEP, such as a portion being a 3-year fixed term, a portion being a 5-year fixed term, and the rest being a 5-year variable term.
National Bank’s All-in-One allows you to consolidate debts at a fixed or variable mortgage rate. As you pay down your mortgage, the available credit for your line of credit will automatically increase by the repaid principal amount.
The most common types of loans that will have a collateral charge are readvanceable mortgages, which are mortgages with an attached home equity line of credit (HELOC). They’re called readvanceable because you can borrow more money as your home equity increases. Since your mortgage is already registered for a greater amount, your lender doesn’t need to register a new charge each time your home equity increases. Some readvanceable mortgage lenders might even automatically readvance by increasing your available credit at set time intervals.
Most lenders do not accept a collateral charge transfer or assignment. Thus, collateral mortgages can only be “discharged” from your lender. This means you are essentially cancelling the mortgage and paying it with money from another lender. It is not a simple transfer, as with standard mortgages. There are three types of fees you’ll need to pay to discharge your mortgage.
A standard charge mortgage, sometimes called a conventional charge mortgage, registers all the specifications of your mortgage, including its principal amount. For example, if you borrowed a $500,000 mortgage, then your lender will register a $500,000 mortgage. This registration secures the loan amount, plus any unpaid interest and fees, minus any repaid principal. Should you wish to borrow more money in the future, your lender will need to register another charge for that amount. Mortgage registrations cost money and incur legal fees, and they also take time.
Most mortgages that you might see from most lenders are standard-charge mortgages, meaning they secure only the initial loan amount and any related fees, without the flexibility to increase the mortgage amount without a new registration.
Knowing how your mortgage is registered is important. The Canadian Bankers Association (CBA) has a voluntary "Commitment to Provide Information on Mortgage Security" that will disclose information about your mortgage security. This includes telling you about the difference between collateral charge mortgages and conventional (standard) charge mortgages when it comes to switching to another lender, borrowing more funds, or discharging the mortgage. Banks that follow this voluntary commitment disclose this information on their website, at their bank branches, and on request.
The main benefit of a collateral charge mortgage is that your mortgage is already registered for a greater amount. If you want to borrow more money during your mortgage term, it’s easier for your lender to add other lending products secured by your home equity.
A drawback of collateral charge mortgages is that they’re harder to transfer to a new lender. This can make it more of a hassle to switch lenders, such as if you’ve found another lender offering a better mortgage rate. As you’re more likely to stay with your current lender, your lender might not be incentivized to offer the best possible renewal rate either. Another drawback is that the higher registered charge can make it more difficult to receive additional financing from other lenders, as your property is already being used at 100% or more to secure your collateral charge mortgage.
Some lenders might not even accept transfers of collateral mortgages. For example, you cannot transfer a collateral mortgage to Scotiabank. Instead, you’ll need to have the mortgage discharged by fully paying it off before being able to switch to Scotiabank.
Standard charge mortgages benefit from their ease of transferring between lenders. This means that you can switch mortgage lenders at the end of your term to those offering the best rates without incurring additional fees. While some lenders might cover charges associated with transferring a collateral charge mortgage, it isn’t always guaranteed. Having a lower amount registered can also make it easier to get additional financing elsewhere.
Collateral Charge | Standard Charge | |
---|---|---|
Flexibility | ✔ Can easily borrow more money in the future without requiring additional mortgage registrations ✖ Can make it more difficult to receive additional financing elsewhere or to transfer your mortgage to another lender. | ✔ Can easily switch your mortgage to other lenders, such as to those offering a better rate ✖ Borrowing more money requires additional costs associated with a new mortgage registration |
Borrowing More Money | ✔ Let you borrow money without the costs associated with registering another charge against your title. | ✖ You’ll need to refinance or apply for a new HELOC in order to borrow more money, and your lender will need to register a new charge |
Availability | ✖ Some Lenders | ✔ Most Lenders |
Most mortgage lenders use standard-charge mortgages, including monoline lenders such as True North Mortgage. Some lenders offer both, while others might only offer collateral-charge mortgages. TD is a major bank that only offers mortgages with collateral charges. Tangerine also only offers collateral-charge mortgages.
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