What is a Collateral Mortgage?
What You Should Know
- Collateral charge mortgages allow you to borrow more money in the future without your lender needing to register again with the land registry/title office.
- A larger amount than what you actually borrowed is registered on the title of your home.
- Examples of collateral charges could be for a readvanceable mortgage or a home equity line of credit (HELOC).
- A standard charge mortgage allows cost-effective transfer of a mortgage between different lenders.
In a collateral mortgage, a charge is registered on your title with the local title registry, while the details of your mortgage only appear on a contract signed by you and your lender. 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 all the details of your mortgage, including the amount of money borrowed, are registered. Thus, a collateral charge allows you to borrow more money in the future without your lender registering a new charge against the property.
Securing a Mortgage
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.
What is a Collateral Charge Mortgage?
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.
What is a Standard Charge 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. 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.
Bank Disclosures
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.
Collateral Charge vs. Standard Charge
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.
Comparing Collateral vs. Standard Charge Mortgages
| 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 |
Which lenders use standard charge mortgages?
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. HSBC and Tangerine also only offers collateral-charge mortgages.
Types of 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 secure personal loans, lines of credit, and even credit cards against your home equity. Examples are the RBC HomeLine Plan, the Scotia Total Equity Plan (STEP) and the TD HomeEquity Flex Line. To view more lenders and options, visit our readvanceable mortgage page.
The Costs of Switching Collateral Mortgage Lenders
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 for discharging your mortgage.
- Discharge fees: Some provinces have a limit on the fee. This administrative fee ranges from $0 to over $600.
- Legal fees: You can expect to pay between $400 and $2,500.
- Penalty fees: There are many variables, and the best solution is to use a mortgage penalty calculator.
Collateral Mortgage Lenders
RBC Royal Bank
The RBC Homeline Plan is a line of credit that allows you to consolidate your debts under a low interest rate. You can choose to borrow at either a fixed or variable rate.
TD Bank
TD Home Equity FlexLine is a collateral mortgage that has two parts, a standard mortgage term and a HELOC, which you are able to take out at a variable interest rate based on TD’s prime rate. As you pay off more of your mortgage term portion, it will unlock more equity for your HELOC to draw from.
CIBC
The CIBC Home Power Plan is a collateral mortgage that acts as 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.
BMO
The BMO Homeowner ReadiLine program is a collateral mortgage that allows you to borrow up to 80% of your home equity. If you borrow more than 65%, you will have to pay in amortizing installments (interest + principal). Every term payment towards your mortgage will increase your HELOC credit limit.
Scotiabank
The Scotia Total Equity Plan (STEP) lets you link all your products, including your mortgage, credit cards, personal loans, and line of credit. Your credit limit under STEP will automatically increase as you pay down your mortgage.
National Bank
National Bank’s All-in-One program allows you to consolidate debts at a fixed or variable mortgage rate. As you pay down your mortgage, your line of credit’s credit limit will automatically increase. A monthly fee of $7 applies for each account.