What is a collateral mortgage?
Canadian Collateral Mortgage 101
In Canada, a collateral mortgage is a type of mortgage that is secured by a borrower’s property and registered with the lender as a charge against the property.
Unlike a traditional mortgage, which is registered for the amount of the loan only, a collateral mortgage is registered for a higher amount, typically up to 125% of the property’s value.
The advantage of a collateral mortgage is that it allows borrowers to access additional funds in the future without having to go through the process of refinancing.
For example, if a borrower wants to access additional funds to renovate their home or to consolidate debt, they can do so by simply requesting an increase in the credit limit on their collateral mortgage.
Collateral Mortgage Downsides
However, the downside of a collateral mortgage is that it can be more difficult and expensive to switch lenders when the mortgage term expires, as the borrower may need to pay legal and appraisal fees to discharge the collateral charge.
Additionally, the lender has the right to seize the property and sell it in the event that the borrower defaults on the loan.
Conclusions and Further Thoughts
You can choose to have a collateral mortgage or not, it’s up to you. Ask your mortgage broker about this mortgage feature and discuss whether this is the right product for you.