Buying your first home: Three steps to successful mortgage shopping

-Table of contents

Step 1: Know what you need and want in a mortgage

Mortgage security registration: standard charge or collateral charge

When you are shopping around for a mortgage, ask each lender you contact whether they will register the mortgage security as a standard charge or a collateral charge. Standard charges are also known as conventional charges, non-collateral charges, traditional charges, traditional residential mortgages, residential mortgages, deeds of hypothecary loan and retail mortgages.

Some lenders in Canada register all mortgage loans with collateral charges, some only use standard charges and others use both types, depending on the mortgage product.

Ask how the charge will be registered before you make a final decision so you have time to discuss the potential advantages or drawbacks of the different types of charges, and to choose the option that best suits your needs.

As of September 1, 2014, members of the Canadian Bankers Association​​ that offer residential mortgages have committed voluntarily to provide information on mortgage security​. The information provided to consumers under this Commitment will help consumers understand the differences between the types of security.

What is a charge?

All mortgage loans are secured by real property (or in Quebec, an immovable), such as a house. This means that a “charge” (or “hypothec” in Quebec) is registered against your property in the applicable province or territory and it gives the lender certain rights, including the right to sell the property if the loan is not repaid as agreed.

What is a discharge?

A discharge (also known as a “release” in Quebec) is the removal of a charge from the title of your property. After you pay off a mortgage loan and any other loans secured by the real property, the registered charge can be removed from the title of your property. Check with your lender for the steps involved with discharging your mortgage. There may be costs to discharge your mortgage.

Types of charges

There are two types of charges that lenders use: a standard charge or a collateral charge. There are differences between the two that you should consider before you enter into a mortgage loan agreement.

Standard charge 

With a standard charge, the specific details of the mortgage loan, such as the amount, term and interest rate, are included in the charge that is registered on the title to the property. A standard charge only secures the mortgage loan that is detailed in the document, and not any other loans you may have with your lender, such as a line of credit. The lender must provide all of the details of your mortgage, such as payment and prepayment privileges, in a separate credit agreement.

Collateral charge

With a collateral charge, the specific details of the mortgage loan might not be included in the charge that is registered on the title to your property. A collateral charge can be used to secure multiple loans with your lender, including a mortgage or a line of credit. A separate credit agreement contains the specific terms of the mortgage loan.   ​

What you should know about standard charges 

Registration amount: The charge is registered for the actual amount of the mortgage loan. For example, if you require a mortgage loan of $240,000 to buy a home that costs $300,000, the lender will register the standard charge for the actual amount of the mortgage—in this example, $240,000. 

Borrowing additional funds: If you want to borrow more money in the future, then you might be able to get it using your home to secure the new loan. 

  • You will need to apply for the additional funds and re-qualify based on the lender’s current criteria, the property value and your ability to repay the new loan amount.
  • You will need to register a new charge. There may be costs such as legal, administrative, discharge and registration costs. Talk to your lender for full details. 

Switching lenders: If you want to switch your mortgage loan to a different lender at the end of your term without changing the loan amount, then it may be possible to do so by assigning your mortgage to your new lender. This is referred to as an assignment (or a subrogation in Quebec): the existing charge is assigned to the new lender rather than being discharged and replaced with a new charge. Talk to your lender for full details.

  • You may need to apply to the new lender and re-qualify based on the lender’s current criteria, the property value and your ability to repay the new loan amount.
  • Typically, at the end of your term, other lenders will allow you to switch your mortgage to them at little or no cost to you. Check with your lender for details.  
  • An assignment is not possible if you want to borrow additional funds when you are switching lenders. You will need to discharge your existing charge and register a new one. See “Borrowing additional funds” above.  

What you should know about collateral charges 

Registration amount: The charge can be registered for an amount that is higher than your actual mortgage loan to allow you to potentially borrow additional funds in the future if you want to. For example, if you require a mortgage loan of $240,000 to buy a home that costs $300,000, the lender may register the charge for $300,000 (or more). Talk to your lender for more details.

  • You only have to make payments and pay interest on the money you actually borrow, as described in the credit agreement, not on the amount of the registered charge. 

Borrowing additional funds: If you want to borrow more money from your lender later, then you may be able to do so without having to discharge your current charge, register a new charge and pay the associated legal and other costs. This is possible because the charge might have been registered for an amount higher than your original mortgage loan, or because you have paid down your loan and it can now go back up to the higher amount set out in the charge.  

  • Access to additional funds is not automatic. You will need to apply for the additional funds and re-qualify based on the lender’s current criteria, the property value and your ability to repay the new loan amount.
  • A new charge will only be required if the amount you wish to borrow is more than the amount that is registered on the original charge.

Switching lenders: If you want to switch your mortgage loan to a different lender at the end of your term without changing the loan amount, other lenders may not accept the transfer of your collateral charge mortgage. Instead, you will likely need to discharge your existing mortgage and register a new mortgage with the new lender. 

  • You may need to apply to the new lender and re-qualify based on that lender’s current criteria, the property value and your ability to repay the new loan amount.
  • You may have to pay fees, such as legal, administrative, discharge and registration costs. Check with your lender for details and whether any discounts are available to you. 
  • To discharge your collateral charge mortgage, all loan agreements secured by the collateral charge, such as car loans or lines of credit, must be repaid in full or transferred to the new lender. 

Other points to consider:

  • A bank cannot provide you with a mortgage loan for more than 80 percent of the value of your home unless you have mortgage default insurance. As you pay down your mortgage or as the value of your home increases, you may be able to borrow additional funds up to the maximum of 80 percent of your home’s value, or higher if the new loan is insured for default.  
  • As with any loan, even though you may qualify to borrow more money, make sure that you can comfortably repay the additional amount
  • If you are making changes to your mortgage or ending it before the end of the term, there may be prepayment charges.

​​Key differences between standard charges and collateral charges ​ 

​​ ​Standard charge ​Collateral charge
​Registration amount
  • Amount registered is the same as the actual amount of your mortgage loan.
  • Amount registered may be higher than the actual amount of your mortgage loan. 
Borrowing additional funds at the of the term​
  • ​You will need to register a new charge.
  • There may be legal, administrative, discharge and registration costs.​
  • ​You may not need to register a new charge if the total amount of all loans is equal to or less than the registered amount of the charge.
  • There may not be any legal, discharge or registration costs. 
Switching lenders at the end of the term (without borrowing additional funds)​
  • ​Typically, at the end of your term, other lenders will accept an assignment at little or no cost to you.

 

  • ​Other lenders may not accept an assignment.
  • You will likely need to discharge your existing charge and register a new charge with the new lender.
  • All loan agreements secured by the collateral charge, such as a line of credit, must be repaid in full or transferred to the new lender.
  • There may be legal, administrative, discharge and registration costs.​

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