Every mortgage secured by a property will be registered with the land title office.There are two ways your mortgage can be registered on title: Standard charge or collateral charge. Not long ago, most lenders registered all mortgages as a standard charge. In recent years, some lenders – mainly the major big banks – have moved towards using the collateral charge.
When choosing your mortgage it is vital you fully understand the terms you are agreeing to. Choosing the right mortgage can protect your interest now and in the future. Let’s focus on the major differences between the two charges/liens that your mortgage can be registered as.
Know How Your Mortgage Is Registered
STANDARD CHARGE MORTGAGE
A standard charge mortgage is registered for the amount of your mortgage only. A standard charge mortgage allows you the freedom to freely move lenders at renewal time without incurring legal fees. As a borrower, you want to be in a standard charge mortgage because it gives you the leverage to shop options at renewal.
A standard charge mortgage allows you to borrow more in the form of a second mortgage or a home equity line of credit (HELOC). As you pay down your mortgage you can access the equity you’ve gained. This is the preferred method.
COLLATERAL CHARGE MORTGAGE
A collateral charge mortgage is registered on title for more money than you require to close. For example, a $500,000 mortgage might be registered on title as a $600,000 charge. The lender will tell you this is beneficial because it makes it easier to access the home equity without incurring legal fees. What is often ommited by the lender directly in this case is they still requalify you as with any mortgage change if you want more money than originally approved for.
The major downside of a collateral mortgage becomes evident at your maturity date. If you want to change lenders in order to obtain a better product or rate, you are on the hook for legal fees. This often deters borrowers from moving lenders and they can feel “forced” to take whatever renewal rate their current lender is offering.
With a standard charge mortgage, in most cases, the new lender will cover the charges under a straight switch(no new money) in order to earn your business. This means no fees to you and the ability to shop for the best mortgage. For that reason and the fact that you have to requalify anyway if a change is needed this is our preffered option and is reviewed first for our personal applicants. You would only have a collateral charge if they lender required for your personal circumstances that was required at that timeof obtaining the mortgage.
Navigating through the mortgage process alone can be tricky. The Angela Calla Mortgage Team is here to help personally firstname.lastname@example.org 604-802-3983