What's the difference?
When you need a residential mortgage loan to purchase a home, lenders (mainly banks) require security for repayment in the form of real property, such as a house. The lender providing the mortgage loan will require you to sign a charge document, which will be registered in the provincial or territorial land registry office where the property is located. The charge gives the lender certain rights, including the right to sell the property if the loan is not repaid as agreed.
There are two types of charges a lender can register: standard or collateral.
A standard charge may also be referred to as a traditional, conventional, or non-collateral charge. What is a Standard Charge? A standard charge is registered on title in a document that includes the important terms of your mortgage loan, such as the principal amount, interest rate, term, payment amount, etc. A standard charge is registered for the actual amount of the mortgage, securing only the one mortgage loan. For example, if you require a mortgage loan for $250,000 to purchase a home and the loan was secured by a standard charge, the lender will register a standard charge for $250,000. If you want to borrow additional funds you will have to pay off the mortgage loan, discharge the registered charge, sign a new mortgage loan agreement and register a new charge on title.
What is a Collateral Charge? A collateral charge allows you to use your home as security for one or more loans. Because the lender may register the charge for an amount that is more than your initial loan, you may be able to borrow more funds without having to register a new charge, provided the total amount owing is no more than the principal amount of the collateral charge. For example, if you require a mortgage loan for $250,000 to purchase a home, the lender may register a collateral charge for $300,000, and you may be able to borrow an additional $50,000 in future without having to register a new charge. The specific mortgage loan terms (such as the mortgage loan amount, interest rate, term and payment amount) are in a separate document (the mortgage loan agreement), and not included in the document registered on title.
It is important to note that collateral charge mortgages cannot be switched fee-free in between lending institutions upon renewal, if a better rate presented itself elsewhere you would need to register (to your own cost) a new mortgage at a fee upwards of $1200.
A mortgage broker can help you decide which option is best for you.
