# Is this collateral mortgage??



## char08 (Oct 10, 2012)

Hi there,

My broker recently acquired a mortgage for me from TD Bank and the rate is very attractive. People have warned me about collateral mortgages and how difficult it will be to get out of them. As a result, I had specifically asked for a conventional mortgage. 

My broker assured me that the mortgage from TD is a regular (conventional) mortgage. There is a condition on the commitment letter regarding 'COLLATERAL CHARGE' and it says:
TD Canada Trust Mortgage Loans are now secured by a collateral charge. The collateral charge is registered for the MORTGAGE LOAN amount. 

From my understanding, a collateral mortgage registers for an amount that is 100% to 125% of the purchase price. So from this perspective, it seems that this is a regular mortgage. But I'm not sure if there are other considerations/consequences that I am not aware of. Also, I read somewhere that TD ONLY offers collateral mortgage. So I am very confused.

Am I safe to go ahead with this mortgage commitment? Or should I walk away and find another bank?

Thanks!


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## mrcheap (Apr 4, 2009)

I can't help you with your question char08 (I'd never heard of a "collateral mortgage" before), but two articles about them are on Moneyville: http://www.moneyville.ca/article/1153051--collateral-mortgages-why-banks-like-them http://www.moneyville.ca/article/1032150--beware-the-pitfals-of-collateral-mortgages

The first article seems to indicate that TD exclusively offers collateral mortgages, which (along with the clause you've found), seems to indicate that this *IS* a collateral mortgage you've been offered. I'd try to find out for sure (maybe call TD directly - Canadian Mortgage Trends could probably help you as well), and if it is I'd walk away and find another BROKER.


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## Xoron (Jun 22, 2010)

char08 said:


> Hi there,
> 
> My broker recently acquired a mortgage for me from TD Bank and the rate is very attractive. People have warned me about collateral mortgages and how difficult it will be to get out of them. As a result, I had specifically asked for a conventional mortgage.


From what I've read in the past, TD doesn't offer conventional mortgages anymore. Only "readvanceable " mortgages. Here is the article I read back when the changes came into effect.

http://www.canadianmortgagetrends.c...d-mortgages-to-become-collateral-charges.html


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## char08 (Oct 10, 2012)

Thank you both for your advice. The articles are very helpful.
I will contact my broker and see what other options are.

Just out of curiosity, does anyone know how much it roughly costs to discharge and transfer the collateral mortgage upon renewal? (eg. discharge fee, legal costs and etc.)


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## dougboswell (Oct 25, 2010)

char08 said:


> Hi there,
> 
> My broker recently acquired a mortgage for me from TD Bank and the rate is very attractive. People have warned me about collateral mortgages and how difficult it will be to get out of them. As a result, I had specifically asked for a conventional mortgage.
> 
> ...


From Moneyville.ca. It is registered as a collateral. The advantage to the bank is that a collateral agreement makes it harder for you to leave because it interlocks your lending. As Toronto real estate lawyer Mark Weisleder, a Moneyville columnist, points out, a collateral mortgage secures all debt held with that lender under one agreement. So a line of credit, a credit card, car loan or any personal loan will all be secured by the same agreement.

Most banks do not allow transfers of collateral mortgages because they are tied to other consumer loans. This means that at the end of your five-year term, you have to pay discharge fees to get out of one mortgage and additional fees to register a new one at another financial institution. On the other hand, a conventional mortgage is easy to transfer when the term is up.

Basically at the end of term they will offer you a renewal rate which may be competitive or it could be higher than rates from other lenders. It will cost you money to go to a different lender,


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## themortgageguy (Jun 28, 2012)

TD typically does register all of the mortgages they write as collateral. The issue I have is that lenders that provide collateral charge mortgages do not explain them clearly to the client and what the outcomes could be. I recently had a client that needed to access funds. He had plenty of equity in two properties that he owned but they have been registered by TD as collateral and at 125% of the value of the properties and therefore there was no equity available for other lenders to lend against.

That being said, I _think_ you can request your mortgage to be a standard charge mortgage. However I would absolutely ask your broker to contact the TD underwriter he is working with and get confirmation in writing that the mortgage is not collateral charge. Also don't wait until the last minute to get the mortgage documents to your lawyer for review.

It would seem from your mortgage documents that the mortgage is still collateral charge, but only registered for the amount of the mortgage you are requesting, however there are still there are still the other characteristics of a collateral charge to pay attention to.

Ask a lot of questions and get answers in writing. Is there a reason your broker took your mortgage to TD? Are the rate or mortgage features exceptional?


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## Eclectic12 (Oct 20, 2010)

themortgageguy said:


> ... Ask a lot of questions and get answers in writing. Is there a reason your broker took your mortgage to TD? Are the rate or mortgage features exceptional?


A good question to ask!

Having used mortgage brokers twice - the closest to a big five bank mortgage that's been on the short list has been the lessor known subsidiary that deals only in mortgages or an insurance company bank. So it is strange to me to hear of broker that went with that route.

The several co-workers who have discussed their mortgage brokers short list with me also did not have any of the big five banks on their list either.


Cheers


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