Step 1: Know what you need and want in a mortgage
Mortgage registration: standard or collateral charges
Your lender will register what is known as a "charge". This process provides a means of securing a mortgage or other loan against your property. There are two types they may use: standard and collateral.
Residential mortgages have traditionally been registered with a standard charge.
A collateral charge mortgage allows you to use your home as security and potentially borrow additional funds or change loans and other credit agreements, without the need to discharge your registered mortgage, register a new mortgage for a higher amount and pay legal fees.
Standard charge mortgages
- Usually registered for actual amount of mortgage loan: For example, if you require a mortgage loan of $240,000 to buy a home that costs $300,000, the lender will usually register the standard charge for the actual amount of the loan ($240,000)
- Costs to switch lenders: If you decide that you want to switch your existing mortgage to a different lender at the end of your term, and your new lender agrees, it is generally possible to do so by transferring your mortgage. This is referred to as an assignment. Your new lender may be willing to cover some or all of your costs to switch lenders.
If you want to borrow additional funds, you will likely need to pay fees to discharge your existing mortgage and register a new one.
Collateral charge mortgages
- Can be registered for a higher amount: This type of charge may allow you to borrow additional funds in the future. For example, a lender could register the charge for 100% (or more) of the value of your home when you are only borrowing 85% of the home's value.
Even though the charge may be registered for more than your initial loan, you only have to repay funds and pay interest on the money you actually borrow.
After your charge is registered and you receive the initial loan, the maximum amount of additional funds you can borrow against your home is still limited to 80% of its value. As you pay down your mortgage and if the value of your home increases, you may be able to borrow additional funds, up to the maximum of 80% of your home's value.
- Additional funds can be advanced: Allows you to potentially borrow additional money from the lender without the need to register a new charge and pay the associated legal and other fees. Your home can be used to guarantee other forms of credit from the same lender, such as lines of credit, credit cards and car loans.
Note: Access to additional funds is not automatically approved. Your lender will generally need to approve any requests and re-qualify you for additional funds you want to borrow. The lender could refuse your request if your financial situation changes—for example, if you lose your job.
Additional funds you borrow may not be offered at the same rate or terms.
It may be convenient to borrow money with a collateral charge mortgage, but it can also be easy to borrow more than you can comfortably repay.
- Costs to switch lenders: If you want to change lenders at the end of your term, note that other lenders may not accept the transfer of your collateral charge mortgage. Instead, you will likely need to pay fees to discharge your existing mortgage and register a new mortgage with the new lender.
If you discharge your collateral charge mortgage, your current lender can require you to repay any additional funds that had been secured by the charge, such as car loans.
When you are shopping around, find out if the lender will register the mortgage with a collateral charge or a standard charge. Some lenders in Canada register all new mortgage loans with collateral charges. Ask about it before you get pre-approved so you have time to discuss the potential advantages or drawbacks, and to decide whether the option suits your needs.