There are basically two ways that a mortgage can be registered against your property.   Either as a Standard Charge or a Collateral Mortgage.  Let’s review these options

A Standard Charge mortgage is registered with the land title or registry office in your municipality and it is registered for the amount of your mortgage.  If you have a mortgage for $310,000.00 it is registered as $310,000.00.  This charge can be transferred for a nominal fee if you would like to move it to another lender and often the lender who will be receiving the mortgage will pick up the costs.

A Collateral Mortgage is resisted under Personal Property Security Act and can only be registered or discharged on a property and cannot be transferred.  The amount that is registered can be up to 125% of the purchase price or value….. yes purchase price not mortgage amount, of your home.  For example if the purchase price or appraised value is $5000,000.00, the amount that can be registered is $625,000.00.  So why would a lender register as a collateral mortgage?  What are the benefits? Well the idea is that if you require more money one day, then one would save the legal cost of registration fees.  TD Bank registers all their mortgages as Collateral Charges and often if you have an all in one credit line and mortgage this too is registered as Collateral Charge.

The question you need to ask is:  Does it make sense for the bank to own the equity in my home?

Applying for the equity in your home?

Let’s say 10 years go by and you and your wife would like to invest in some home renovations due to the growth of your family. There is substantial equity in your home for you to do this.  Presently one of you is staying at home and one who is working full time. The income is less than it was and as a result the couple does not qualify for the loan under the banks guidelines and the bank declines their request.  These clients do not give up and decide to visit their friend’s mortgage broker who finds a lender who will lend them the money for their home renovations.  In order for the new lender to register the mortgage, the clients will need to discharge the property from a collateral charge.  Legal fees are in the range of $800+ for this and the clients could incur large breakage fees from their existing lender if they were to move the entire mortgage to the new lender.

If I am behind on a loan or credit card where my Collateral Mortgage is?

Another factor to consider is that when life sometimes is tough economically and you are falling behind on payments with a credit card or loan, the bank will use the equity in your home to pay those loans.  The bank has the power under Canadian law called “Offset” and can use the equity within your collateral mortgage to pay your other unsecured debts without your authority.

Are you are an investor and lend out for second mortgages?

If you are an investor that lends out for second or third mortgages, you may want to ensure that there is not a collateral charge registered otherwise you may not have any equity to protect your investment.  Ask those who are borrowing the money for their mortgage commitment to find out how it is registered. You will need to look through the paperwork as it will not be big and bold on the first page and often clients are not aware of how their mortgage is registered.

If you mortgage will be registered as a collateral charge, you do have options of registering it at an inflated value or you can request to have it registered for the amount of your mortgage.  Have the options explained to you.