When you need a loan to purchase a property, your bank or lender will require security for repayment in the form of a charge that is registered at your provincial land registry office. This process secures the residential mortgage loan to your property and gives your lender certain rights as it relates to the terms of your agreement. There are two forms of charges: standard and collateral.
What is a standard charge?
A standard charge includes the details of your mortgage such as the term, rate, payments and amortization. A standard charge only registers and secures the amount of the mortgage itself.
For example: If you purchase a home for $250,000 and make a $50,000 down payment, only $200,000 would be registered as a standard charge.
What is a collateral charge?
A collateral charge is a re-advanceable mortgage that allows you to pull equity out of your home throughout the term of the mortgage. With this type of charge, you are able to re-apply for additional funds from your lender without having to pay a penalty or refinance. Collateral charge mortgages register between 100% and 125% of your property’s overall value, whereas standard charge mortgages register the loan value.
For example: If you purchase a home for $250,000 and have $50,000 down payment, your home can be registered as a collateral charge for up to $312,500.
Downside of a standard charge
With a standard charge mortgage, you will not be able to withdraw extra funds out of your home without refinancing, which would mean paying legal fees or a possible penalty.
Upside of a standard charge
With a standard charge, you can switch or transfer your mortgage to a new lender at the time of renewal without incurring legal fees.
Downside of a collateral charge
With a collateral charge, moving your mortgage at the time of renewal will incur legal costs, and because the lender knows this, they may be less inclined to offer their best rates.
Upside of a collateral charge
With a collateral charge, you can take additional funds (up to 80% of the value) out of your home throughout your mortgage term.
When you decide to purchase, refinance or sell your home, please give us a call to discuss your options. We look forward to working with you.