A standard charge will register with the land title in your municipality and the loan can be registered, transferred or discharged from your lender. On the other hand, a collateral charge is registered under the Personal Property Security Act (PPSA) of Canada and can only be registered or discharged from your lender.
The collateral charge is set higher than the value of your property and it is readvanceable, which means the lender can lend you more funds after obtaining the mortgage without you needing to refinance and pay legal fees. However, it is non-transferable which means it cannot be assigned to a new lender like a regular mortgage with standard charge. Borrowers typically need to refinance in order to switch to another lender, which will include paying for lawyer and legal fees again. This charge is good for individuals who are thinking of borrowing more money during their term of mortgage. One of the major disadvantages of this method is that on paper you look like you have more debt than you do, simply because you have a larger amount registered and might have a difficult time getting qualified for more financing.
There are more into collateral charges and ways around this depending on the conditions of the contract, which your mortgage consultant can discuss with you in detail, and also break down the pros and cons.
Below is an example of how collateral charge calculated:
Purchase Price: $300,000
Down Payment $60,000 (20%)
Mortgage requirement: $240,000
Let’s assume your lender will register your home value with a collateral charge of 125% of value of your property.
$300,000 X 125% = $350,000
Now, let’s say after couple of years your new appraisal value for subject property goes up to 350,000 and you have already paid down portion of your mortgage (remaining $150,000) and would like to take some equity out of your place. Your lender typically allows you to borrow 80% of the new appraisal value without refinancing your mortgage.
$350,000 X 80% = $280,000
$280,000 – $150, 000 = 130,000
Set up a meeting with me and we’ll go through your Mortgage Charge on Title in Vancouver. At love the mortgage in Vancouver, My services are free of charge and come with no obligations. I look forward to speaking with you!