Know the different mortgage registrations

Brandon Scott is a Sherwood Park based mortgage consultant and the author of a weekly column entitled Real Estate Solutions in the Sherwood Park News. This article was originally published on March 02, 2012:

When a new standard or traditional mortgage is activated, the lender will register that lien (also referred to as a charge) at the provincial Land Titles Registry office. However, home owners should be made aware that not all lenders register their mortgage as a standard charge.

Some lenders are moving to a collateral charge mortgage, which has its pros and cons. Thus it is extremely important to understand the differences between a standard charge mortgage and collateral mortgage. Do you know what type you have?

The primary difference is that a standard charge mortgage is registered for the actual amount of money borrowed, while a collateral charge mortgage registers the mortgage for 100 per cent, and possibly up to 125 per cent of the value of the home at closing. As an example, let’s assume your home’s value is $300,000 and you take a new mortgage for $240,000. A collateral charge could register that mortgage for as much as $375,000. Well above the amount you are currently borrowing and the amount of the home’s current value. The lenders that use this state it is an advantage. If you wanted to access more funds from your property’s equity in the future, you would not need to revisit a lawyer or pay new legal costs to have that registration increased.

Now here is the catch: When a mortgage comes up for renewal at the end of that term, it is difficult to transfer the collateral charge to another lender unless you obtain a discharge. Meaning this may limit the options you have available at renewal, and it will cost you more in legal fees. One reason you may wish to change lenders is to take advantage of a better product or rate that another lender is offering.

With regular standard charge mortgages, you can switch for free, although certain minor charges may apply. In addition, with a collateral charge, it could be difficult to get a second mortgage unless your home significantly appreciates in value. If you don’t believe that you’ll need to refinance or extract equity, then a regular standard charge mortgage will suit you fine, and it will give you the ability to move to another lender at renewal should you want to without incurring legal fees.

Determining whether to get a standard or collateral charge mortgage adds another layer of complication for many homebuyers and owners. Speak to an experienced mortgage professional who can analyze your situation and help you determine how each lender registers their mortgages and what options is right for you.

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