I have noticed a trend in the type of mortgages being registered on properties. A few lenders are now registering collateral mortgages instead of a traditional mortgage. The main difference between these two mortgages are a traditional mortgage sets the terms and rate in it while a collateral charge has no term or details of the actual mortgage you receive. You may think that this is not a big deal but it is because a traditional mortgage can be moved to other lenders offering better rates with no cost to the clients. While a collateral mortgage cannot be moved, it must be discharged and a new mortgage prepared which is done at considerable cost to the client.
By registering collateral mortgages the lender effectively blocks you from moving to a lender with better rates due to the cost, so in many instances you take a higher rate because of the prohibitive costs associated with registering a new mortgage. The other problems with collateral mortgages is it prevents you from receiving secondary financing from another lender that may offer better rates or simply your existing lender said no to a line of credit but they effectively block you from going elsewhere.
Lets say you have had some credit challenges due to lost employment and you now want to get a second mortgage to catch up. Your current lender says no to your request so you go see a Toronto mortgage broker to help obtain finances only to discover that no one can place a second mortgage behind your collateral first mortgage, so you are effectively out of options.
There are a few lenders that practice this improper behavior but the two main culprits are Scotia Bank and HSBC Bank and as of October 18, 2010 TD Canada Trust will enter this club. Originally these registrations where done so clients can have several different terms under one umbrella and this would be the correct use of a collateral registration. But I have seen many people with one traditional mortgage where there was no need for a collateral registration. Also the bank never explains what they are doing and the consequences of their actions so you become an uninformed client and would never know they did this till the day you try to switch lenders or obtain secondary financing.
When you work with Paul Mangion a Toronto Mortgage Broker this will never happen unless you choose the products where it is necessary to use a collateral charge. If you are unsure if you have a collateral charge please feel free to contact me to review you current mortgage.