Why Should You Know About This?
Your long term mortgage plans may be affected by what kind of mortgage you have registered against your home. Knowing the difference may save you some future legal fees and a little stress.
The Collateral Mortgage
A lender can register up to 125% of the value of your home on title. Yes, you read that right.
Before you get all up in arms, there is a reason for this and it can be beneficial to you - that is if you're planning on sticking with this lender long term and possibly will want to pull money out of your equity.
How this looks on paper:
Let's say you just purchased a house and the value is $425,000. This means the lender can register the loan value up to $531,000.
Why would a lender do this?
So you can have easy access to credit products with them.
Something to consider here, in order to access the additional credit within that $531,000 - you still can only borrow up to 80% of your homes value - so your house value would have to go up to $663,000 to access the full $531,000. Make any sense?
The Cons with a Collateral Mortgage
- You will have to pay legal fees and registration fees if you refinance or try move your mortgage to another lender.
- The registered loan against your house will appear as though you owe more on your home than you actually do. This raises questions when selling your home and it can also negatively affect your ability to borrow money.
The Standard or Traditional Mortgage
This is when a lender registers the actual loan value. So, if the house was purchased for $425,000, the loan value will show on title exactly what you borrowed - so if you put 20% down - it would be $340,000.
You're unable to change the mortgage or access credit products without the need to re-register them against your house, costing you time and money.