The two ways to register a mortgage in Canada on title are a Standard Charge or Collateral Charge and it is important for borrower to know the difference.
A Standard Charge was used by all lenders until about 6 years ago and being informed of the differences in the two types of liens/charges has become very important. The major difference that impact the borrower is that a Collateral Charge is non-transferable to another lender at the time of renewal. Should you decide to switch to another lender you’re starting at the beginning and will incur legal fees between $600 and $1000.
The second big difference is that a Collateral Charge mortgage is registered at 100% to 125% of the property value. With a Standard Charge mortgage it is registered at the amount you are actually borrowing. The benefit of the Collateral type is it’s easier for the borrower to access the equity without incurring legal fees. Of course the downside is that tapping into too much of the home’s equity can limit your options when shopping for a new mortgage at renewal.
With a Standard charge mortgage your options are open and it provides the leverage needed to effectively negotiate for competitive rates with the current lender. Also the mortgage is registered for the original amount you borrowed so to access more equity at a later date would involve re-qualifying and some fees.
To sum up a standard charge mortgage allows you the flexibility when your mortgage comes up for renewal because your mortgage is transferable. Accessing the equity at a later time would however mean re-qualifying and you would incur some fees. Choosing a collateral charge mortgage would mean should you decide to move to another lender at renewal time you’re starting the process all over again. Access to your equity with this type of mortgage is simpler because the mortgage is already registered for more than you originally borrowed.
Shopping for a mortgage can be overwhelming in Toronto and Brampton. As an award winning mortgage broker I can help find the right product that suits your goals, now and in the future. Contact me today to find out how.
