“A collateral charge mortgage will cost you more than it saves you,” according to Rob McLister when interviewed by the Globe and Mail’s segment: Carrick Talks Money.
Essentially a revolving mortgage, the benefit to a collateral charge mortgage is that you can lend more [money through your mortgage without having to register it again with the land title office. This means that you don’t pay legal fee if you are adding more money to your mortgage, which is seen as the main benefit to this type of mortgage. It’s a bit of a catch-22 situation because you are dependent on your bank giving you a good rate should you require the additional funds.
Also, it is more difficult--and expensive--to transfer your mortgage to another lender, which is why the Globe and Mail’s video insinuates that with a collateral charge mortgage, you become “married to your lender.” Typically, with a standard mortgage, the new lender will cover the legal and appraisal fees associated with the transfer, but a collateral charge mortgage requires a re-financing process, which means that the legal fees have to be paid for out of pocket.
One other hidden feature to collateral mortgages is that all your unsecured debt from that lender, such as credit card debt and lines of credit, now becomes backed by your mortgage, which could have serious implications on your home ownership should you default on another debt that used to be unrelated to your mortgage. Similarly, with a collateral charge mortgage, the banks can increase your interest rate by up to 10 percentage points if you go into arrears.
Big banks love collateral charge mortgages so much, because of how it bonds you to your lender, that many of them have made this unique type of mortgage their default mortgage, without explicitly disclosing it as such. Many of our clients who have had previous mortgages issued through a bank had no idea that they had been registered for a collateral charge mortgage.
The government is starting to require lenders to disclose more information to make sure that people understand the fine print before they sign. Even still, collateral charge mortgages are yet one more reason to get a second opinion on your home financing options. What may seem like a great deal might turn out to have strings attached that will hurt you later on.
Our goal is to get our clients the best mortgage for them and help them understand everything they need to know about home financing, so there are no hidden surprises down the road.
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Your London, Ontario Mortgage Brokers at Dominion Lending Centres Forest City Funding FSCO# 10671