Collateral vs Conventional Mortgage
| Feature |
Collateral Mortgage |
Conventional Mortgage |
| Registration |
Loan against property (up to 125%) |
Specific mortgage amount |
| Adding funds |
Easier (no re-registration) |
Requires new registration |
| Switching lenders |
More expensive |
Lower cost transfer |
| Transfer at renewal |
Must discharge and re-register |
Can assign/assume |
| Second mortgage |
Generally not possible |
Available from other lenders |
| Used by |
TD, Tangerine, National Bank |
Most other lenders |
How Each Type Works
Conventional Mortgage
| Feature |
Details |
| Registration |
Exact mortgage amount registered |
| Example |
$400,000 mortgage = $400,000 registered |
| At renewal |
Can transfer to new lender (assignment) |
| Adding HELOC |
Separate registration needed |
| Second mortgage |
Another lender can register behind first |
Collateral Mortgage
| Feature |
Details |
| Registration |
Higher amount (often 125% of value) |
| Example |
$500,000 home = up to $625,000 registered |
| At renewal |
Must fully discharge and re-register |
| Adding HELOC |
May be included in same registration |
| Second mortgage |
Usually not possible (no room in registration) |
Cost Comparison: Switching Lenders
Conventional Mortgage
| Cost |
Amount |
| Assignment fee |
$200-400 |
| Legal/admin |
Minimal |
| Total |
$200-400 |
Collateral Mortgage
| Cost |
Amount |
| Discharge fee |
$200-400 |
| New registration |
$300-500 |
| Legal fees |
$500-1,000 |
| Total |
$1,000-1,900 |
Who Uses Which Type
Collateral Mortgage Lenders
| Lender |
Default Registration |
| TD Bank |
Collateral (TD Home Equity FlexLine) |
| Tangerine |
Collateral |
| National Bank |
Collateral |
| Some credit unions |
Varies |
Conventional Mortgage Lenders
| Lender |
Default Registration |
| RBC |
Conventional |
| Scotiabank |
Conventional (STEP is collateral) |
| BMO |
Conventional |
| CIBC |
Conventional |
| Most monolines |
Conventional |
Advantages of Collateral Mortgages
Easier Access to Equity
| Benefit |
Details |
| Borrow more later |
Without new registration |
| Built-in HELOC potential |
May be included |
| Lower cost to add funds |
No legal fees |
| Readvanceable |
As you pay down mortgage |
Example: Future Borrowing
| Scenario |
Collateral |
Conventional |
| Have $300K mortgage |
β |
β |
| Want $50K HELOC later |
Request from lender (no cost) |
New registration ($500-1,000) |
Disadvantages of Collateral Mortgages
Switching Costs
| Impact |
Details |
| Renewal negotiation |
Less leverage |
| Can’t easily transfer |
Higher costs discourage switching |
| Lender knows this |
May offer less competitive rates |
Limited Secondary Financing
| Impact |
Details |
| Second mortgage |
Hard to get |
| Other HELOCs |
Registration is full |
| Investment loans |
May be blocked |
Example: Second Mortgage Blocked
| Situation |
Collateral |
Conventional |
| Home value |
$700,000 |
$700,000 |
| First mortgage |
$400,000 |
$400,000 |
| Registered amount |
$875,000 (125%) |
$400,000 |
| Room for second mortgage |
None |
$160,000 (80% LTV minus mortgage) |
Readvanceable Mortgages
What They Are
| Feature |
Details |
| Structure |
Mortgage + HELOC combined |
| Type |
Usually collateral-based |
| How it works |
As mortgage paid down, HELOC increases |
| Examples |
TD FlexLine, Scotia STEP |
How Readvanceable Works
| Year |
Mortgage |
HELOC Available |
Total Registered |
| Start |
$400,000 |
$0 |
$500,000 (80% of $625K home) |
| Year 5 |
$340,000 |
$60,000 |
$500,000 |
| Year 10 |
$260,000 |
$140,000 |
$500,000 |
Making the Decision
Choose Collateral If:
| Situation |
Why |
| Plan to stay with lender long-term |
Switching cost doesn’t matter |
| Want easy access to equity |
Avoid re-registration costs |
| Will use readvanceable features |
Valuable flexibility |
| TD/Tangerine offers best rate |
May be worth it |
Choose Conventional If:
| Situation |
Why |
| Like to shop rates at renewal |
Easy transfer |
| May need second mortgage |
Keep options open |
| Value flexibility |
Not locked in |
| Uncertain about staying with lender |
Lower switching costs |
What to Do If You Have a Collateral Mortgage
At Renewal
| Strategy |
Action |
| Negotiate hard |
Lender knows switching costs |
| Get competing quotes |
Show them to your lender |
| Calculate break-even |
Is switching worth the cost? |
| Consider staying |
If rate is competitive |
Break-Even Calculation
| Factor |
Amount |
| Switching cost |
$1,500 |
| Mortgage amount |
$300,000 |
| Rate difference needed |
0.1% annually = $300 |
| Years to break even |
5 years |
If you can save more than 0.1%, switching may be worth it.
Questions to Ask Your Lender
| Question |
Why It Matters |
| Is this a collateral or conventional mortgage? |
Know your registration type |
| What amount will be registered? |
Understand collateral amount |
| What are the discharge costs? |
Know switching costs |
| Can I get a second mortgage later? |
Future flexibility |
| Is this a readvanceable mortgage? |
Understand the structure |