Why I will not choose TD Collateral Charge Mortgage
Since TD made changes to it’s mortgage registration procedure in 2011, all TD mortgages will be registered as collateral mortgages instead of as conventional mortgages.
My clients always ask me if I work with TD Canada trust for mortgages. The answer is YES, I have access to their mortgage division and can even get a more competitive rates than the branch. But, at the same time I will not sign my clients up with TD unless they insist.
Let me explain..
A while back, TD bank has made changes to their mortgage registration process. Effective October 18th 2011, all TD mortgages will be registered as collateral mortgages instead of as conventional mortgages. What do those changes mean for an average home buyer? I should probably explain.
Firstly, the definition of a collateral mortgage:
A Collateral Mortgage is a loan attached to a promissory note and backed up by the collateral security of a mortgage on a property.
Normally collateral mortgages have been used exclusively for secured lines of credits.
Some collateral mortgages are registered for the full value of the property.
The lender then allows, say, 80% of the value of the property to be advanced. As the value of the property increases over time, the borrower(s) can withdraw funds equivalent to up to 80% of the new appraised value. All this for only the cost of an appraisal. Many other mortgage lenders have such secured lines of credit products and major chartered banks will accept “transfers” of conventional mortgages at little or no cost.
My Pros & Cons of collateral mortgages.
Let’s start with Cons:
- Most chartered banks will not accept “transfers” of collateral mortgages from other chartered banks. If the consumer wishes to switch their collateral mortgage to another lender upon maturity, there will be legal & appraisal costs. Approx $750-$1000
- Upon maturity, the lender would offer only a posted fixed rate or just a slightly lower rate knowing the costs associated with transferring to another lender has legal & appraisal costs.
- Collateral charges allow lenders to change the interest rate and/or loan more money to qualified borrowers after closing. On secured lines of credit, the interest rate is registered at Prime + upwards of 10%.
- Collateral loan involves the other debts you may have.
- Under Canadian law, a lender may seize equity to cover other debt you have with the same lender. So, in essence, you’re possibly securing all your loans that you have with that financial institution; be it credit cards, unsecured lines of credit, car loans, or overdraft etc.
Now, the Pros: I can’t think of any!
I have to admit that this was a great business move for TD Bank. They have created a higher barrier for exit so their existing clients are more likely to stay and take a higher rate. And as for the clients.. you can probably guess that they are at a loss here.
Having said that, I have a few accounts with TD bank, and no issues otherwise. But as far as mortgages are concerned, there are better options out there that you should look into before making a final decision regarding your lender.
If you are currently shopping for a home, renewing your mortgage, or looking to refinance, we have access to mortgage products that are not available through a retail bank branch and can potentially save you thousands of dollars in mortgage payments per year.
Contact me today for a FREE, no-obligation consultation and find out how you can get the best deal on your mortgage stress-free!