Standard VS Collateral

Standard VS Collateral Mortgage

Lenders vary the way they register your mortgage against your title. I would highly suggest you read the fine print and make sure you understand what it all means. If there is something you don’t understand, then make sure you ask.

There are two ways lenders can register the mortgage you owe them on your title. Most mortgages are registered as a standard charge however certain lenders register a mortgage as a collateral charge. If you have a multi mortgage product such as a fixed rate mortgage plus HELOC (Home Equity Line of Credit), it for sure registered as a collateral charge.

Let’s look at the differences:

1. Collateral Charge

This debt is literally a promissory note. It means the mortgage is collaterally secured against your house. Your house is used as security. If you do not pay, they can demand your mortgage be paid out in full. This even applies to non-payment of property taxes or condo fees.

If it is not paid in full when the request is made, it can be sent to their lawyer for collection or foreclosure. Should a foreclosure proceeding occur, other lenders will not be interested in taking it over.

Should you have other debts with the same lender, whether secured by the home or not, the lender can demand that any other debt to tacked onto your house.

Banks like to request to register your collateral mortgage for higher than the amount that was initially advanced. Their reasoning is if you ever wish to access future equity, they will advance funds without having to go through the registration process all over again.

And lastly, dealing with a mortgage renewal that is a collateral charge is a little more difficult to transfer to another institution. You typically have to pay the legal fees again to register the mortgage charge into the new lender’s name. This could cost an extra $1600.00. Sometimes lenders will run specials throughout the year to pick up this extra cost.

2. Standard Mortgage

A standard mortgage is a “regular” mortgage and is the only security for the debt registered.

With this type of mortgage, should you miss a payment, you have the ability to catch up and make the payment. They must honor that mortgage agreement until the next renewal date.

On a standard mortgage charge, it clearly defines the terms to pay down the mortgage thus if you have to secure a second mortgage, that lender feels more comfortable knowing you are paying down the balance on the first mortgage. It gives them extra security.

At the end of your term, you have the option to renew with that lender or switch to another for a more favorable rate at no-charge.

If you believe you will never miss a payment or may want to refinance to access equity, then a collateral charge may be a wise choice. If it’s your personal goal to pay off your mortgage as quickly as possible then a regular mortgage charge will suit you just fine.

Deciding whether a standard vs collateral mortgage charge just adds complication. If you do not completely understand it all, make sure you are getting advice from a true “mortgage professional” who really understands the complexity of mortgages and can help you make an informed decision. You wouldn’t want to regret your choice down the road.

Contact your trusted Mortgage Broker at www.mortgagetailors for more details. Visit my website at mortgagetailors.com. Call your Trusted Edmonton Mortgage Broker Eva at 780-244-0505 or email eva@mortgagetailors.com You can follow her of Facebook (mortgagetailors) or twitter (abmortgagecoach)