Courtesy of Alexandra Evans-Munoz from The Mortgage Centre.
What Kind of Mortgage Do You Have?
There are two ways in which a lender registers a mortgage loan when your home is used as the security: as a mortgage charge or as collateral charge. Mortgage charges are registered at the Land Registry Office, can be registered, transferred or discharged. This means that if you want to transfer your mortgage to another lender at renewal, you can do so and the lender will usually cover the cost. Collateral charges can only be registered or discharged not transferred. If you have a collateral mortgage and want to change lenders, you will need a lawyer to re- register a new mortgage.
One of our major banks changed its mortgage registration to collateral charge last October. Borrowers are able to register up to 125% of the current home value when they take a mortgage. This makes it easier for the borrower to borrow more money from the bank in the future if your credit remains in good standing. On the other hand, if you or your partner loses your job and you had difficulty making the payments; your credit score will be lowered due to late payments. If you need to refinance, your mortgage may be declined because you do not meet the lender’s guidelines due to the lowered score as a result of your late payments. A mortgage agent may have other alternatives for you, but because 125% of your home value is locked up, your only option will be to pay out the existing current mortgage and re-borrow the entire amount with another lender. Since your credit score has decreased, you will not be able to get the best rates anymore.
Some Canadians still walk into their local bank for mortgage financing. You should be aware of the documents you are signing to avoid surprises in the years to come. Even if you want to leave your bank, it may not be cost effective due to penalties, discharge fee, new mortgage registration and use of solicitor. Another point to consider is will your bank give you the best rate at renewal when they know you’re pretty much locked- up?