- Hey, welcome back, it's Nolan Matthias,
and today I want to talk
about conventional versus collateral mortgage charges.
This is a topic that is often misunderstood,
but it is really simple.
So what I want to do today is give you a simple,
simple, simple explanation of how collateral
and conventional mortgage charges work.
But before we get into it, do me that favor hit
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Okay. So let's get into it.
Let's start with conventional mortgage charges.
Conventional mortgage charge is really simple.
It is a charge, or a document that's registered
against the title of your property.
And it has all the terms and details
of your mortgage registered right there on the title.
So it will have things like your term, your amortization,
your interest rate, and your original borrowing amount.
And as you pay down more and more over time
the amount that you owe the bank,
and the amount that they can claim
against the title of your property goes down accordingly
based on the payments that you've made,
and the amount of principal that you paid down.
Now, the pros to having a conventional mortgage charge
is you only ever owe the bank
what you owe them for the mortgage.
They can't register things like your car loan,
or your credit card or line of credit against your property.
The only obligation you have to them is for the mortgage.
The other pro, and the big one that we see all the time,
is that it is easier to move your mortgage
from one lender to a different lender.
So if you get offered a lower rate elsewhere,
or you just simply decide that you don't like
the current lender that you're with,
you can do what's called a transfer to another lender.
Where basically they re-register the mortgage
on your title to a different lender,
and leave all the original documents basically intact.
So it is very easy to do, a cheap thing to do,
and something that typically the lender
that you're moving to will pay for.
Now, what are the cons of a conventional mortgage charge?
Well, quite simply this.
It becomes more expensive
to borrow more money in the future.
Because if you decide that you want to get
a home equity line of credit,
or a second mortgage, or you want to do a refinance,
then you're going to incur legal fees
in order to register the new mortgage against the property.
And typically those legal fees
are gonna be $1,000 to $1,500,
so not necessarily a big deal,
especially if you're refinancing
for a significantly greater amount of money.
But if in the future, it looks like you are going
to want to borrow more money against your property
then a collateral charge may be the right thing for you.
Now let's talk about collateral charges.
Because what a collateral charge is,
is it as a charge against your property
up to a certain amount of money.
And it can be for the amount that you originally borrowed,
it can be for the entire value of the property,
and in some cases it can be for even more.
So up to 125% of the value your property.
And the collateral charge doesn't have the details
of your loan registered against the title.
It is purely and simply a charge for a certain amount.
Now that doesn't necessarily mean that you owe that amount,
but that is the amount that the lender can lend you,
without having to re-register any documents.
And then what you will have is separate loan agreements
for all the loans that you have
that are tied to that collateral charge.
So you may have a mortgage, you may have a line of credit,
you may have multiple mortgages.
So you may decide that you want to split up your mortgage
between variable and fixed, and you do 50/50.
And you have two separate loan agreements
that are registered to that collateral charge,
but don't necessarily show up on your title.
And what the collateral charge allows you to do
is to borrow money, re-borrow money,
and basically have more access to the equity
in your property without having to go back
to the lawyer every single time
that you want to make a change to your lending products.
Now, some lenders use collateral mortgages
as a retention tool.
So in other words, what they do is they register all
of their mortgages as collateral charges.
Because they know that if you want to move
to a different lender that you're going to have
to pay more for legal fees in order
to move a collateral charge.
And they use that as a set of handcuffs
in order to try to make it more expensive for you to move.
So it's kind of a little bit of a trick.
So the pros of having a collateral mortgage are
that it is easier to borrow more money,
less legal fees incurred if you decide
that you do want to register more money
against the value of your property.
However, the cons are if you want to move
to a different lender it
becomes significantly more expensive.
And also, and this is the big one,
is they can register other products to your mortgage.
So things like credit cards, car loans,
lines of credit all sorts of things.
And it can be things that wouldn't typically
be registered against your property.
And what that can potentially do is if you do something
like miss your payments on a credit card
it could potentially put your house into foreclosure.
Now, we've never seen this happen.
We're unaware of any sort of circumstance where
a lender has put a client into foreclosure,
because they miss credit card payments,
or car loan payments.
But it is potentially something that could happen
under the guise of a collateral mortgage.
So something to be aware of,
and something to watch out for.
Now, the moral of the story is this,
and it's really quite simple.
If you're the type of borrower who
is going to get a mortgage, pay it down,
and never needs to access equity again in the future,
or at least doesn't plan on it,
then getting a mortgage that has
a conventional mortgage charge makes sense.
Because it gives you the freedom
to move around easier, more frequently,
and ultimately take advantage of better rates
at different lenders over the course of your mortgage.
It also makes sure that the bank
has only access to what you owe them,
and doesn't have the ability to register credit cards,
lines of credit and other things against your property.
Now, the benefits to a collateral mortgage are
if you're the person who much like a self-employed person,
or somebody who is an investor is going to want
to access the equity in their property,
than a collateral charge may be right for you.
If you want to split up between fixed and variable rates,
or have multiple products,
then a collateral mortgage charge is right for you.
But at the end of the day,
if you're just a normal borrower who isn't gonna want
to borrow against their property in the future,
then it always makes sense to take
a conventional mortgage charge over a collateral charge.
Because having the ability to switch
to a different lender down the road
is definitely something that is advantageous.
Especially if you can do it for much cheaper
than you would with a comparable collateral charge.
So really quite simple, collateral charges
are for people who want to,
or may need to borrow more money down the road.
Conventional mortgage charges are
for those who will likely not need to.
And ultimately, always take a conventional charge
if you aren't necessarily going to need
to borrow more money down the road.
So I hope you enjoyed that video.
I hope that that information serves you well.
If you enjoyed it, please do me that favor hit
that subscribe button, hit that notification bell.
And please hit that like button,
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And we'll see you on the next one, cheers.