What is a collateral charge, and why does it matter at renewal?
Two mortgages at the same rate are not the same mortgage. One of them can quietly make it harder to leave, and almost nobody is told which one they signed.
The short answer
It is how your mortgage is registered on your property, and it decides how simple renewal shopping is. A collateral charge can secure several loans at once, and moving to a new lender means removing it, which carries fees and conditions. Robin Patel, a REALTOR® in the Greater Toronto Area, raises it early.
Written forHomeowners in the GTA approaching a mortgage renewal who want to shop the rate, and buyers deciding how their mortgage should be registered in the first place.
The short version
- When you take out a mortgage, the lender registers a charge on your property, and there is more than one kind.
- A standard charge only secures the mortgage, and does not secure other loans you may have with that lender.
- A collateral charge can secure multiple loans with the same lender, such as a mortgage and a line of credit, and may be registered for more than the mortgage amount.
- Its advantage is borrowing more later without paying to discharge and re-register, which is a real benefit for some households.
- Its cost arrives at renewal: switching lenders means removing the charge, which carries fees and requires every loan secured by it to be repaid or transferred.
Your mortgage is registered, and there is more than one way
When you take out a mortgage, the lender registers a charge on your property. Most people never think about that step again. The rate and the payment are what get discussed and the registration is handled quietly by the lawyers.
There are two kinds, and the federal guidance describes them plainly. A standard charge only secures the mortgage, and does not secure any other loans you may have with your lender, such as a line of credit. The lender registers the charge for the amount of your mortgage.
The rate and the payment are what get discussed and the registration is handled quietly by the lawyers.
What a collateral charge is for
A collateral charge is not a trick, and it is worth saying that clearly before the drawbacks. With one, you may secure multiple loans with your lender, including a mortgage and a line of credit, and the lender may register a charge higher than the amount of your mortgage.
That is the design, and the benefit follows from it. Registering for more than you borrowed allows you to borrow additional funds on top of your original mortgage in the future, and in doing so you avoid paying fees to discharge your mortgage and register a new one. For a household that expects to borrow against the home again, that is a genuine saving.
| Question | Standard charge | Collateral charge |
|---|---|---|
| What it secures | Only the mortgage | Possibly several loans with that lender, such as a mortgage and a line of credit |
| Amount registered | The amount of your mortgage | Possibly higher than the amount of your mortgage |
| Borrowing more later | Not described as a feature of it | Allows borrowing additional funds without discharging and re-registering |
| At renewal, switching | Not addressed as a blanket rule | You may have to pay fees to remove the charge and register the new one |
| Finding out which you have | Ask your lender, lawyer or notary | Ask your lender, lawyer or notary |
Where it costs you, and the condition people miss
The bill arrives at renewal, which is exactly when a homeowner is most likely to want to move. Where a mortgage is registered with a collateral charge and you want to switch lenders, you may have to pay fees, and those fees cover the removal of the charge from your existing mortgage and the registration of the new one.
The condition attached to that is the part that catches people. The guidance is explicit that you must meet certain criteria to remove the charge, and that you must repay in full or transfer to the new lender all loan agreements secured by the collateral charge, including car loans or lines of credit. So a line of credit you have been carrying comfortably for years becomes something that has to be dealt with before the mortgage can move.
One thing worth being careful about
A great deal of what is written about this subject says that a standard charge can simply be transferred to a new lender while a collateral charge cannot. The federal pages do not say that. They describe what each charge secures and what removing a collateral charge involves, and they mention assignment fees among the costs of switching, but they set out no blanket rule that one type moves and the other does not.
That distinction matters when money is involved. The dependable approach is the one the guidance itself recommends: find out which charge you have, then ask your own lender and your lawyer what switching would actually require in your case, rather than relying on a general rule that may not be stated anywhere official.
What to do, and when
Timing is the whole game here, because every option narrows as the renewal date arrives. The guidance suggests allowing a few months before your renewal date and starting to shop around a few months before the end of your term, which is enough time to find out what you have and what moving would cost.
There is also a question most people never think to ask. You can ask whether your new mortgage lender is willing to pay for some or all of your costs to switch, and separately whether they will cover the costs of a discharge. Lenders compete for business at renewal, and the answer is sometimes yes.
Written by
Robin PatelSalesperson · The Agency Toronto
Updated
Published
Read in your language
A machine translation, not Robin’s words. For anything that decides money, ask him in Gujarati or Hindi directly.
