Over the last few weeks I have received numerous questions on collateral mortgages, specifically around how they differ from a standard mortgage and why they aren’t transferable.
A Collateral mortgage is a mortgage charge typically registered on title as security for a promissory note, demand note or line of credit agreement. Collateral mortgages can encumber the full value of the property and generally do not contain any information on the registered document on the amount of the mortgage, interest rate, repayment schedule etc. Due to this information not being on the registered document and the non-standard terms, most lenders will not transfer a Collateral. There are some distinct advantages and disadvantages to this type of mortgage and they are:
Advantages – Can secure a multitude of credit products and subject to qualifying a client can increase their indebtedness without registering a new mortgage.
Disadvantages – A Collateral charge can encumber 100% of the property value. If the borrower does not meet the current lenders guidelines or that lender does not have the product the borrower wants, financing may not be able to be obtained. Since the mortgage is not transferable, the borrower may be at the mercy of their current lender’s rates at renewal. If the borrower ever falls into arrears, most lenders reserve the right to increase the interest rate on the debt. If circumstances or regulations change or needs require non-traditional bank financing, this type of charge can be highly restrictive
First National does not register Collateral mortgages and we have a Zero Advance Refinance Program to move clients with high ratio collateral mortgages to First National if they are not being offered competitive rates at renewal by their current lenders.
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Submitted by:
Jose Dos Santos Account Manager, Vancouver, Richmond First National Financial LP
