Do you know the difference?
Many people don’t know the difference between a conventional and a collateral mortgage. Why? Because most of the time the information is buried in the fine print of a detailed agreement. That despite the fact that last August federal Finance Minister Joe Oliver announced an agreement with eight major banks under which they would voluntarily disclose general information about collateral mortgages on their websites (by September 1, 2014) and in their branches (by November 30, 2014).
Has voluntary disclosure worked? Not according to The Star reporter, Ellen Roseman. “I found almost nothing when checking the banks’ websites”, she wrote in a February 17, 2015 article.
This is one more (big) reason to work with a mortgage broker who has access to hundreds of financing options and will take the time to explain the pros and cons of mortgage products before you sign on the dotted line.
For your reference, here is the difference between a conventional mortgage and collateral mortgage:
Conventional: Only the amount of the actual mortgage loan is registered against your home. If you borrow $400,000, the lender will register $400,000 as a liability against your property.
Collateral: An amount higher than the actual mortgage loan may be registered against your home. If you borrow $400,000 the lender can choose to register $500,000 or $600,000. This provides you with the opportunity to use the extra $100,000 – $200,000 at a later date, secured by the mortgage, without having to discharge the loan and go through costly refinancing. Nice. Except…
Let’s say your mortgage is coming up for renewal and the bank won’t match a competitive rate so you decide to go elsewhere. You would think that moving a mortgage at the end of a term is no big deal and transfer fees are covered by the new lender. Not so if your current financing is a collateral mortgage. Now you have to hire a lawyer and spend roughly $1,000 of your hard earned money to discharge the mortgage before you can move to a new lender. Is that really fair?
Earlier this month, CBC’s Marketplace revealed a new undercover report on collateral charge mortgages. The consumer affairs program found some bank reps who were not disclosing the pitfalls of collateral charges. That’s despite banks pledging to present collateral mortgages in language that’s “clear, simple and not misleading.”
Do yourself a favour and work with someone that offers (full disclosure) mortgage solutions that open doors, without tripping you up on the fine print.
