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Things to Know About: Collateral vs. Conventional Mortgage Charges

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Buying a property is often the largest purchase a person will make, and all but a very few are financed with a mortgage. It’s important to be well-informed about mortgages, so you can decide which one is best for you.

This document outlines the similarities and differences between collateral and conventional mortgage charges, and how they can affect you.

Security for your loan

Did you know that a mortgage loan is secured by real property such as land? When you borrow money to buy or refinance a property, you agree to let us use your property as security.

Coast Capital will register this agreement as a ‘charge’ against your property at the appropriate land registry office, which gives us the legal right to claim the registered property if the mortgage loan is in default under the terms of your mortgage loan.

Two types of charge – conventional and collateral

Depending on how you (working with your lender) structure your mortgage, there are two types of charges lenders use to document the security for a mortgage loan. These are a conventional charge (also referred to as a traditional, standard, or non-collateral charge), or a collateral charge. 

A conventional charge is registered with the land registry office for the actual amount of the mortgage loan, that is, the amount you borrow. For example, if you need a mortgage loan of $250,000 to buy a property, the lender will register the conventional charge for $250,000. When the conventional charge is registered on title against your property, it contains both the specific mortgage loan terms (such as the mortgage loan amount, interest rate, term, and payment amount) as well as other terms related to the security (such as your obligations and the rights of the lender). If you want to borrow additional funds (beyond the $250,000 to buy the property), you must pay off the mortgage loan, discharge the registered charge, sign a new mortgage loan agreement and register a new charge on title (i.e., refinance).

A collateral charge may be registered for the actual amount of the mortgage loan or an amount that is greater than the actual amount of the mortgage loan. For example, if you need a mortgage loan of $250,000 to buy a property, the collateral charge may be registered for $300,000. By registering the charge for a higher amount than the amount you borrow under the mortgage loan, you may be able to borrow additional funds through future loans or other credit agreements that can be secured by the existing collateral charge (subject to any approval requirements the lender may impose).

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 since it may change over the life of the charge. While the registered charge document may set out an amount, interest rate and other terms that are different from the mortgage loan agreement, the amount you actually owe and the terms of your mortgage loan are those set out in the mortgage loan agreement you sign with us. That is, if there are differences between the documents filed with the land registry and the loan agreement with Coast Capital, the Coast Capital document takes precedence.

At Coast Capital, our product offerings include only mortgages which register a collateral charge against your property. Some of our members may still hold mortgages that were registered as a conventional charge, purchased at a time when we offered these products.

For more information speak to a Coast Capital Lending Specialist. You can also find more information on the Canadian Bankers Association site.

Side-by-side comparison

Learn more about the differences and similarities between a conventional charge mortgage and collateral charge mortgage with this summary overview.

Some definitions to help you navigate the summary:

Discharge:   A discharge is the removal of a charge from the title to your property.
Mortgage terms:   Mortgage terms outline the responsibilities of the person borrowing the money (you) and the institution making the loan.
Transfer: A transaction where either the borrower or lender assigns an existing mortgage (bank loan to purchase a residential property) from the current holder to another person (taking the place of the original borrower) or entity (taking the place of the original lender).
Re-advanceable: A mortgage feature that allows the borrower to re-borrow the principal amount of the original mortgage that has been paid down. A re-advanceable mortgage consists of a mortgage and a Line of Credit (LoC) packaged together.
 
Transferring or assigning the mortgage security to a new lending institution (moving your mortgage)
 

Transferring a mortgage to Coast Capital:

 Coast Capital does not accept transfers of either collateral charge or conventional charge mortgages. Instead, Coast Capital requires that all mortgages transferred from other financial institutions be registered on our mortgage terms. We would be pleased to help you with a new mortgage application.
Transferring to a different financial institution: If you want to switch financial institutions and the new institution does not accept transfers, or if you want to increase the principal amount, you may be able to do so by discharging the charge (that is, paying off the mortgage) and arranging a new loan with a different lender. The new loan will be registered as a new conventional or collateral charge). With this approach, there may be costs such as legal, administrative or registration costs. Talk to your lender.
 
 
 
Common to both collateral charge and conventional charge mortgages Comparison
Collateral charge mortgage Conventional charge mortgage
Borrowing additional funds from Coast Capital (in addition to the actual mortgage amount) To borrow additional funds beyond the actual amount of your mortgage, you will need to apply and be approved by Coast Capital for the increased amount based on our current credit criteria, your ability to repay the mortgage loan and verification that your property’s value supports the mortgage loan request. This may result in costs such as legal, administrative and registration costs. Talk to your lender. For a collateral charge mortgage, Coast Capital may not need to re-register the charge when you increase the principal amount of your mortgage loan or take out another loan secured by your property, as long as you do not exceed the registered amount on the existing charge. There will be no registration or discharge costs and any legal costs may be lower than if you had to re-register the charge.
For a conventional charge mortgage, if you want to increase the principal amount of your mortgage loan, it’s likely that Coast Capital will need to discharge the existing charge and register a new charge for the higher amount. If you want to add a second mortgage loan, Coast Capital must register a new charge against the property. Both of these options may incur legal, administrative or registration costs.

However, some of our mortgage terms contain a re-advanceable clause, in which a mortgage loan can be re-advanced up to the original balance into one new single advance. There are requirements that must be met to be eligible for this, so talk to your lender for details.
Borrowing additional funds from a different lending institution If you want to borrow additional funds from a different lending institution, they may have to register new security with the land registry office by registering either a new additional charge (a second mortgage), or by discharging the existing charge and registering a new charge. In either case, there may be costs such as legal, administrative and registration costs. Talk to your lender. If you have a collateral charge mortgage that is registered for more than your loan amount, and you want to borrow additional funds from a new lending institution using your property as security, your new lender may require information about the outstanding balance or may ask Coast Capital to take certain actions to allow room for the new charge. There may be costs such as legal, administrative and registration costs. Talk to your lender. If you have a conventional charge mortgage and you want to borrow additional funds from a new lending institution using your property as security, the new lender may agree to register a second charge against the property or may require you to discharge and register a new charge. There may be costs such as legal, administrative and registration costs. Talk to your lender.
Discharging the mortgage security When the discharge (removing the charge from the title of your property) is registered, the lending institution loses any rights it would have had against your property under the mortgage security. There may be legal, administrative and registration costs incurred when there is a discharge. Talk to your lender. For a collateral charge mortgage, if there are other loan agreements secured by the collateral charge after you have repaid the mortgage loan in full, you can only request a discharge when you have repaid all the loans secured by the charge. For a conventional charge mortgage, once the mortgage loan is paid in full, Coast Capital will discharge it automatically.
 
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