All the background charges.
Here’s a tricky term: collateral charges.
Most people know that a mortgage is a loan that is secured by a property, but the less obvious part is how that is actually formalized in the background. Once your mortgage broker has arranged the mortgage and had the lender approve all of the supporting documentation, the money still has to change hands. This is where your lawyer comes in. The lawyer handles what’s referred to as conveyancing – transferring money from the new lender to pay out the old one in the case of a refinance, or transferring it to the seller of the home you’ve just purchased. In addition to this, they register the mortgage on the title of the property.
There are actually two different ways that a mortgage can be registered: as a collateral charge (also known as a running account) or not. Which one you get depends on the lender you’re dealing with and the kind of mortgage you’re getting. If you’ve requested a re-advanceable mortgage, a home equity line of credit, or a combination of the two, then your mortgage will be registered as a collateral charge. What this allows is for the lender to adjust the interest rate or total amount loaned to you without having to re-register the mortgage and incur legal fees. Some lenders register all of their mortgages as collateral charges by default, regardless of the type.
Having a clear idea of what your home ownership plans are over the term of your mortgage can be very helpful in deciding what kind of mortgage and what kind of lender you and your broker should be considering.
If you’re confident that you’ll want to access more of your home’s equity in the coming years while staying with the same lender, then a collateral charge mortgage or line of credit is a good choice. However if you’re buying with less than 20% down and you think you’d like the flexibility to move to a different lender down the road, then you should stay away from collateral charges altogether. While the lawyer does the actual registering of the mortgage, he or she follows the instructions sent by the lender, so looking at these options with your broker early on in the process is important.
It’s a bit confusing, so feel free to give us a call and set an appointment to look at any of your current documents or look toward your future options.