Posted by: Vince Gaetano
Banks will sell consumers on collateral mortgages on these facts:
• The Bank can register a higher loan amount against your property so down the road if you need to borrow more, it can be quickly done.
• By registering a higher amount, no legal work is required and there are no legal fees on any further money you might need in the future.
• The collateral mortgage offers flexibility and terms that can be changed at any time.
What Banks will not tell you:
• Unlike a traditional standard charge mortgage, the collateral mortgage is very difficult to move to another lender at end of term.
• A collateral mortgage severely restricts your ability to be a ‘free agent’ at the end of your mortgage term; your ability to shop for a better mortgage rate cannot happen without significant legal costs and bank discharge fees
• A missed payment could result in an adjustment to your interest rate and terms (in the bank’s favour)
• Registering a higher amount on your home can restrict you from getting secondary financing – it eats up your equity in your home.
• The product is designed to keep you in debt as it encourages you to increase your borrowing limits over time
There will not be any “mortgage-burning” parties with the collateral mortgage. While collateral mortgages may have their proper niche in the Canadian marketplace; they are not particularly useful for the average home-owner who is solely focused on paying off the mortgage on their home.
If you want to pay off the mortgage on your home without the lure of accessing built up equity, avoid the collateral mortgage…..you will find yourself mortgage free faster.