Update on TD Collateral mortgage rules
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!
Your best interest is my only interest. I reply to all questions and I welcome your comments. Like this article? Share with a friend.
Steve Garganis 416 224 0114 steve@mortgagenow.ca
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As an industry insider, Steve will share info that the BANKS don't want you to know. Steve has appeared on TV's Global Morning News, CBC's "Our Toronto" and The Real Life TV show. He's also been quoted in several newspapers such as the Globe and Mail, The Toronto Star, The Vancouver Sun, The Star Phoenix, etc.
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I find this most interesting considering I have just recently purchased a home (06’12) conveyed through a mortgage supplied by TD. From the information imparted by this and previously viewed websites (the CBC’s Market Place initially) I must assume that MY mortgage is a “Collateral Mortgage”. The ramifications of which are as yet,to be determined.
Hi Peter, yes, your mortgage is definitely a collateral mortgage… Sounds you like this has come as a surprise to you…. Disclosure or lack of, is a big problem for TD… I wonder how many other TD clients will come to realize their mortgages are registered as collateral charges…
Hi Steve,
Thanks for your response. I do notice that the information on Collateral mortgages appears to be negative as one is apparently tied-in to TD. Are there advantages, if any, to having a Collateral vs. a Conventional mortgage, please?
Hi Peter,
yes, there is one advantage… you can increase your mortgage without having to pay new legal fees… but having said that, the disadvantages far outweigh the advantage…
-you still have to re-qualify for any new increase.
-you can’t transfer your mortgage out without having to register a new mortgage (there is no lender out there that accepts collateral mortgages for transfer). that means you have to pay new legal fees should you wish to transfer..compared with transferring without legal fees for conventional mortgages… (there are some special promotions going on right now where the Lender will pay for the legal fees… this is a limited time offer)
-you lose leverage when negotiating your rate at renewal time because TD knows it will cost you new legal fees to move your mortgage…thus giving less reason for TD to compete on rate…
-and we still don’t know how TD will treat your other credit products should you go into default… will TD add a visa, car loan, unsecured line of credit, to your mortgage is you default? It’s still too new to tell.. but the collateral charge gives that power and authorization to TD…
So in my opinion, a collateral charge isn’t a great option…. and with some so many other Lenders offering superior products and competitive rates, why go with collateral?
Re your comment about credit score, I notice that my current NBC AIO product, which is a collateral charge mortgage, reports the entire balance (mortgage + LoC components) as a revolving credit line on my credit report, which does affect my credit score.
I understand that is true for the other readvanceable products as well, like RBC HomeLine, Scotia STEP, etc.
I also understand that a standard charge, non-readvancable mortgage is reported on your credit bureau report, but does not affect your credit score.
I’m not sure how a TD non-readvanceable mortgage, that would still be a collateral charge, would report.
Hi Nabeel,
I believe TD’s mortgage is reporting the amount advanced.