With a collateral charge mortgage, your lender registers your mortgage for more than the amount you are borrowing. That’s unlike a standard charge mortgage, where only the actual amount borrowed is registered. This allows you to borrow more money in the future without your lender having to register a new charge against the property. What does this mean for you as a borrower, what are the benefits of collateral charge mortgages, and how do they differ from a standard charge mortgage? This page will take a deep look at collateral charges vs. standard charges.
Mortgages are secured by property, which means that if you default on your mortgage, your lender can seize the home. To use a property as collateral, your lender must register the mortgage with your province’s land title or land registry office. This registers your lender against the title of your home.
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. The rate registered might differ from your actual rate too. In this example, even though a $625,000 charge is registered on the property’s title, you currently only owe your lender $500,000.
It’s important to note that you won’t be able to borrow the full amount registered right away. 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.
A standard charge mortgage, sometimes called a conventional charge mortgage, is registered for the amount of your mortgage only. For example, if you borrowed a $500,000 mortgage, then your lender will register a $500,000 mortgage. Since there’s no extra amount above that, 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 through legal fees, and they also take time. Most mortgages that you might see from most lenders are standard-charge mortgages.
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 will 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 having it fully paid 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|
✔ Can easily borrow more money in the future without requiring additional mortgage registrations
✖ Can make it more difficult to receive additional financing elsewhere
✔ 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|
✔ Readvanceable mortgages automatically let you borrow money when you make mortgage payments, and/or when your property value increases
✖ 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
✖ 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.
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 credit limit at set time intervals.
Another common type is “all-in-one” plans, which can allow you to borrow personal loans, lines of credit, and even credit cards against your home equity. One example is the Scotia Total Equity Plan (STEP). Other examples are the RBC HomeLine Plan and the TD TotalFlex Plan. To view more lenders and options, visit our readvanceable mortgage page.