A few weeks ago, we heard from a source that TD Canada Trust was making a major change in their Mortgage Lending policy. ALL new mortgages would be registered as a collateral mortgage instead of as a conventional mortgage…. previously, only secured lines of credit were registered as collateral mortgages.
By the way, here is a great article from Gail Vax-Oxlade, a well known personal money manager…..she would never take one of these new mortgages with TD… I think she is right on the money with her comments and analysis.
Since the original article, TD has put out a few information sheets for their internal Retail Staff and for Mortgage Brokers.. Here are the highlights of those releases… and my thoughts:
- Interest rate will continue to be compounded semi-annually….(that’s good)
- mortgages will be reported to equifax in the same way… (this point isn’t really clear… currently, secured lines of credit are reported and appear on a personal equifax report… and this can and does affect your credit score.. so does that mean all collateral mortgages will appear on a personal credit report…? Yes, I believe they will)
- (A collateral mortgage charge is registered under the Personal Property Security Act (PPSA) like a car loan and can only be only be registered or discharged, not transferred.)
- the collateral mortgage can be registered for up to 125% of the borrower’s home allowing the client to borrow more money at a future date subject to TD Bank qualifications. (the theory behind this is that it will allow the borrower to refinance at a future date without having to pay new legal fees… saving the client $650 to $900..but once again, we ask the question…will the TD Banker offer you the absolute best deal if they know it will cost you $650 to $900 to leave the Bank?……we think your negotiating position is weaker, not stronger)
- the collateral mortgage is assignable, meaning the TD mortgage allows you to transfer this mortgage to another lender at maturity… (ok, but there is no lender, at this time, that will accept a collateral mortgage for a mortgage transfer…these mortgages DO NOT currently qualify for NO-FEE Switch programs….so this feature is useless…a borrower will have to incur legal fees to move their mortgage to another Bank….which brings us back to our previous point….your negotiating position is weaker)
- TD will not accept other financial institution’s collateral mortgage charges for transfer…. (this pretty much says it all…TD won’t accept this type of mortgage for transfer from another Lender and no other Lender will accept them either)
In short, if you lose leverage to negotiate, it could cost you dearly….. Let’s assume you end up paying 0.25% more on your mortgage at renewal time or at the time of refinance…. On a $250,000 mortgage, a 0.25% difference in rate will cost you $2,977 in lost savings… and a 0.50% difference will cost you $5,950.
Buyer beware…. borrower, be even more aware!
