Collateral charge on a mortgage is a secured loan against property and you can borrow more money by reusing this charge.
Mortgage loans in Canada are of two types, namely standard and collateral charge mortgages. There has been a difference of opinion among many on choosing the right one due to many reasons. But with a collateral charge, mortgage, the primary benefit is to borrow additional money over time without any additional costs like that of lawyers’, administration, registration, and discharges.
Only if you want to borrow money more than the initially advanced amount, you have to obtain the collateral charge again for the excess amount. In this aspect, it is most preferred by customers than the standard charge mortgage. But collateral charge mortgages are not transferable like the conventional charge mortgages.
In recent years, the collateral charge mortgage is becoming more popular compared to the standard charge mortgage. And many financial institutions in Canada now prefer collateral charge mortgages rather than the standard charge mortgage.
It is because of its flexibility to both the borrower to get more money without any further charges or hassles, and also for the lender as it is not easily transferable to other institutions like the standard charge mortgage.
Also, many financial institutions offer to register 125 % of the property value as the refinance loan amount for the collateral charge mortgages. It increases the line of credit to the borrowers not to go anywhere else for the additional financial needs until the closure of the collateral charge mortgages.