What your bank won't tell you about Collateral Mortgages

The term Collateral Damage wasn't coined with mortgages in mind but it could have been.  Collateral mortgages are becoming a trend with some lenders (mostly big banks) in an effort to restrict their clients ability to go to other institutions for their lending needs. A collateral mortgage is very similar to a traditional mortgage except that it allows 125% of the appraised value to be registered on title.  The benefit touted by the banks is that when the property has appreciated then you will be able to access more of your equity without the legal expenses involved in re-registering the mortgage.  The down side is that you are now limited to one institution which may not offer what you want or need. Say for instance that you fall on hard times and require a second mortgage, or a Line of Credit?  Won't happen unless your bank has the product and rate you're looking for. What about transferring your mortgage to another company at renewal?  Very unlikely. Even TD which offers collateral mortgages won't accept them from another lender so whatever rate they offer you is what you're going to get unless you want to break the whole mortgage and pay the legal fees again.

Are collateral mortgages bad?  No.  They are what they are, but you should know what the consequences are before you sign one.  Ask your mortgage professional about it.