Federal govt finally takes action on Collateral mortgages.

handcuffsTD Almost 4 years ago, I reported that TD was about to make one of the biggest changes in mortgage history.   They were about to register all their mortgages as a collateral charge.    Consumer advocates spoke out against the collateral charge as they recognized it would limit a borrower’s future options.

A collateral charge is always used for secured lines of credit products.   The charge does not require an amortization which allows the credit balance to go up and down.   Using a collateral charge for ALL mortgage products gives the Banks more power.   It allows them to attach other unsecured debt to your mortgage…  Unsecured credit products such as loans, credit cards, unsecured lines of credit or other unsecured Bank debt.  I bet most people don’t know that?   

A year later, ING Direct announced they would follow TD and begin registering all their mortgages as a collateral charge.  ING was later bought out by Scotiabank in January 2013…. It wouldn’t surprise me if Scotiabank also makes this change at some point in the future.Scotia and ING

If you aren’t sure why you should stay away from collateral charges, I suggest you take one minute and read this article by Gail Vax-Oxlade, a well-known personal money manager.    She has some strong words against collateral charges.

In January 2013, CBC Marketplace did an expose on TD’s collateral mortgage.   The program showed just how the word ‘collateral’ only appeared in the small print, buried deep in the contract.   The branch staff also didn’t seem to know much about what collateral was or how it would impact the borrower’s future options.

FINALLY, THE FEDERAL GOVT IS TAKING SOME ACTION

It’s taken 4 years, but our Federal govt has finally stepped in and forced the BANKS to include a little more disclosure.   Finance Minister, Joe Oliver, announced that the 8 largest Banks in Canada will provide more disclosure about Powers of Attorney, Joint Bank Accounts and Collateral Mortgages.

I’ll be following this closely to see just what the new changes might be.    Anytime there is more disclosure, it’s always a good thing.  I applaud this announcement.  Let’s hope there is clear, concise disclosure that the average person can understand.

Just remember, you have dozens of other options besides the BIG SIX BANKS…  The BIG SIX BANKS have a huge market share of all mortgages in Canada… but that doesn’t necessarily mean they offer the BEST products or rates.    I’ve pointed to this Bank of Canada study before.   Competition in the Canadian Mortgage Market Feb 2011   The study clearly states that consumers obtained better rates through a Mortgage Broker….and that the BANKS don’t offer their renewal clients the best rates.

You owe it to yourself to explore those options.   If you don’t know where to start your search, contact an experienced Mortgage Broker.   A broker can shop dozens of lenders across Canada and offers unbiased, market neutral advice.

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

3 Responses to “Federal govt finally takes action on Collateral mortgages.”

  1. Omer Quenneville Says:

    I have been preaching this to my clients for years. Nice to see it is getting some traction.

  2. nabeelj Says:

    Quick Q. If I have a standard charge mortgage in 1st place with (for example) MCAP and get a HELOC in 2nd place with TD, I assume the TD charge would be collateral. Does that affect my ability to transfer the charge in 1st place to another lender at maturity without legal fees?

    Assuming the answer is no, does TD registering a charge larger than the HELOC amount change the answer?

    • Steve Garganis Says:

      Hi Nabeel,

      Getting a 2nd mortgage line of credit product with TD or any other lender wouldn’t necessarily affect your ability to transfer your mortgage to another institution, however, it could impact your ability to qualify for another Lender’s mortgage product…

      And if Td is registering a charge for more than the actual credit line being offered, yes, this could impact your ability to transfer your mortgage to another financial institution, however, I think most lenders would be ok with this as their charge comes in first position and takes priority over any subsequent charge..

      The answer is yes and no. Each Lender is different and has different policies in place.


Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: