When buying a new or existing home, we often employ the services of both a real estate agent and a lawyer. But did you know that using the free services of a mortgage broker can save you thousands of dollars in future interest payments? Today we welcome Steven King, a local mortgage broker who’ll explain how some institutions use collateral mortgages to rope you into higher mortgage renewal fees – and higher interest rates.
Collateral mortgages have been increasingly popular with major financial institutions over the past two years. Although collateral mortgages are great for some borrowers, it’s very important to understand the pitfalls and restrictions they hold on homeowners in the future.
Have you ever been encouraged or pressured by your bank to add/secure an additional line of credit to your mortgage? To increase your global limit or perhaps set your mortgage up in various fixed/ variable rate terms? These are all forms of collateral mortgages.
A collateral mortgage/charge has as its primary security a promissory note or loan agreement with an additional backup, or a collateral security registered against the home as well. It can be setup as a second part to your mortgage, for an example a secured line of credit, or it can be a mortgage that is registered higher than your initial mortgage amount. Whether you use your line of credit attached to your mortgage or owe nothing on it, the charge has still been registered, making it a collateral mortgage.
The major pitfall of having the mortgage set up this way is that at renewal time, at the end of your current term, these mortgages are not switchable to a new lender for free. Meaning if you want to shop around and go to a new lender offering the best rate at renewal, you can only switch by paying legal and appraisal fees. Most financial institutions, knowing that the majority of people will not pay legal/appraisal fees to switch lenders, will offer their clients less competitive rates at renewal, because essentially it is too expensive to switch.
Many of the banks these days do not even give clients a choice and they register a higher mortgage amount than you need/seek. Some can register a mortgage for up to 125% of your home’s purchase price. By registering a “global limit” higher than your mortgage amount, it allows you to be able to refinance down the road without having to incur legal fees. As of September 1st, 2014 the government finally stepped in and made a law that the big name banks have to start disclosing these guidelines and educating their clients on what they are really signing. In the past people had no idea that their mortgage was collateral and what the consequences were.
I still deal with the majority of these big name banks offering these products, but I also deal with an additional twenty lenders offering various types of mortgages. The banks do offer some great products but collateral mortgages only benefit a certain target market, not everyone. It is important for your mortgage broker to assess your needs and put you with a lender that will not only offer a competitive rate but offer the best mortgage products for the future.
Be sure to deal with a broker that knows the positives and negatives of each lender. I truly believe it is important to have a competitive rate but also to have the best mortgage options available for down the road, such as prepayments, bridge financing, low penalty calculations, portability and the ability to increase and extend your current mortgage term. Only a very select group of lenders offer what I like to call all of these “bells and whistles”. These are all options that do not come across peoples’ mind when shopping for a mortgage because it is not their expertise, or because they want the lowest rate possible, when in reality they can get both.
Call me for my free mortgage service and let me shop around for the lender that best fits your needs. I receive commissions directly from the lender making it a free service for you and can offer very competitive rates and cashbacks to gain your business for any switch/renewal, refinance or purchase for all residential and commercial properties.
Mortgage Broker Licence # M11002072
Ottawa-Carleton Mortgage Inc.
Mortgage Brokerage Licence # 10419
381 Richmond Road
Ottawa ON K2A 0E7
613-563-5095 – Direct Phone
613-563-3195 – Direct Fax
613-563-3447 x 155