The statement that not all mortgages are created equal came up again recently with regards to TD and how they register their residential mortgages. Effective October 11, 2010, TD started registering all their residential mortgages as collateral mortgages. These changes make it easier for homeowners to tap into their equity and harder for them to switch to another lender upon renewal. Here are some highlights with my comments:
1) Mortgages will be reported to Equifax
This is interesting since traditional mortgages in Canada do not report on your credit history. Lines of credit ( which are registered as collateral charges ) do appear on the credit history. So does this mean that these mortgages will?
2) Collateral mortgage can be registered up to 125% of the borrower’s home value upon close.
This allows you to borrow more money ( if you qualify and your home goes up in value ) in the future and avoid legal costs ( $600 to $900 savings ) – this might be okay but read on. One further issue with this practice is that Realtors will often pull title on a property prior to listing it to see if there is enough left over from the sale to pay their commissions. With a mortgage registered at 125% of the home value this could create concern in the eyes of the realtor.
3) The collateral mortgage is assignable
This means that TD will allow you to transfer this mortgage to another lender at maturity – here is the big negative – there are no lenders at this time that will accept a collateral mortgage for a mortgage transfer. This is important because these mortgages will not qualify for a NO-FEE transfer to a new lending institution – so the borrower must now pay legal and appraisal costs to move to another bank. Currently mortgages that are registered normally can be transferred to a new lender upon renewal at NO COST to the borrower. With TD’s collateral mortgage you will incur these costs to switch to get a better rate.
4) TD will not accept another lenders collateral mortgage charge for transfer
This pretty much confirms it – TD will not accept this type of mortgage at this time and no other lender will accept them either.
So, in summary, in my mind, these changes are more negative than positive because if you loose leverage to negotiate, it could cost you a lot in the form of higher interest rates upon renewal. This move again reinforces why mortgage clients should deal with a qualified Mortgage Broker to help consumers decide what mortgage product is best for them.
Canada Mortgage Direct
Bob Alexander, B.Comm, CMA, AMP
Phone: 403-875-5270
Email: bob@mortgagedoctors.ca
www.mortgagedoctors.ca