Collateral mortgages: Caveat emptor

Published 22 May 12 11:43 AM | Gord McCormick 

Collateral Mortgages:  Buyer Beware!

Do you know whether you have a conventional mortgage or a collateral mortgage?  Many banks are pushing their collateral mortgage products and at least two large banks now offer only collateral mortgages, while the others offer both conventional and collateral types.

The principal difference is that in a collateral mortgage the bank registers a higher amount than your mortgage amount (and up to 125% the value of the property) against the property in the land registry system.  This facilitates other borrowing with that same financial institution for the consumer (i.e. loans, lines of credit, credit cards) but also protects the bank in several ways.  Most banks do not allow transfer of collateral mortgages, if they are tied to other consumer loans-so it makes it more difficult and costly to leave that bank, even at the end of the mortgage term.

There are many customers who will appreciate the additional borrowing flexibility but too often, all the ramifications of signing up for a collateral mortgage do not get explained fully, due to oversight or timeline restraints.

So please make sure that your mortgage broker or bank officer completely goes through all details, terms and mortgage conditions, especially if you are looking at a collateral mortgage.

Here are two excellent background articles on collateral mortgages that should be required reading for anyone considering a collateral mortgage.

http://www.thestar.com/business/personal_finance/spending_saving/2012/04/01/collateral_mortgages_why_banks_like_them.html

 

http://www.thestar.com/business/personal_finance/spending_saving/2011/07/30/beware_the_pitfals_of_collateral_mortgages.html 

 

 

Gord McCormick, Broker of Record

Dawn Davey, Broker

Oasis Realty Brokerage Ottawa

www.oasisrealtyottawa.com

oasisrealty@rogers.com

613-435-4692

 

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