Most banks now default to providing you with a collateral mortgage (versus a conventional mortgage provided by most non-bank lenders).
But what does that mean to you?
What is a collateral mortgage?
- With a collateral mortgage, banks can register the mortgage up to 125% of the current value of your property (a conventional mortgage registers the mortgage at exactly the amount borrowed).
- The benefit to a collateral mortgage is that you can access additional equity in your property in the future at a reduced cost. To access that equity you will need to refinance, which has some costs:
- Both a collateral and conventional mortgage require you to pay for an appraisal (approx. $350) when refinancing
- However, when refinancing a collateral mortgage, legal fees are covered by the lender. This can save you upwards of $800
- One downside of a collateral mortgage is the increased cost to switch your mortgage to a different lender for a better rate. It’s great that you save $800 in legal fees during refinancing, but you lose the power to negotiate with the lender to get a lower rate at maturity; which in the long run, could cost you thousands
- For example, on a recent $250,000 mortgage we saved a client 0.15% versus their bank. That’s a savings of over $1,800 in interest.
- Banks are smarter than ever and will do anything to keep you as a client. If you over-extend your mortgage up to 125% it will be much more challenging to leave
What’s right for you?
The answer might not be straight forward, which is why we are here to help you find the best option for you. Call a mortgage professional today, and let us guide you in making the best decision for your financial future. #WeAreProfessionals