COLLATERAL CHARGE VS CONVENTIONAL CHARGE

These days most Banks in Canada have begun to register their mortgages as a Collateral Charge Mortgage. Here at Think Financial we register all our mortgages as Standard Conventional Charge Mortgages as we feel this gives our clients the most flexibility and savings.  

UNDERSTANDING A CONVENTIONAL CHARGE MORTGAGE VS A COLLATERAL CHARGE MORTGAGE

When a house is mortgaged, it is used as security against the loan. This security is registered with a land registry office and is commonly known as a “charge”. This charge gives the lender the legal right to claim the registered house if the mortgage defaults. There are 2 types of charges that can be registered by a lender; Conventional and Collateral. At Think Financial, our mortgages are registered as a Conventional Charge.

HOW ARE THEY DIFFERENT?

CONVENTIONAL CHARGE

  • Registered for the original loan amount only.  This allows you to attain a line of credit with another institution.
  • Interest and payments are based only on the balance outstanding.
  • Can be transferred “as is” to another lender at renewal time without incurring legal costs.

COLLATERAL CHARGE

  • Registered for 100% of the property value. Greatly limits your ability to attain secondary financing on your home. 
  • Interest and payments are based only on the balance outstanding.
  • Transferring your mortgage to another lender at renewal time would involve refinancing through a lawyer with legal costs costing upwards of $750+.

What can you afford?

Before looking for a home, determine what you can afford. Closely examine your finances. It is important that you consider how much you can afford as a down payment, the total cost of owning and maintaining a home, and whether you will be able to manage your other living expenses as well.

GDS and TDS Ratio

Two simple calculations can help you estimate how much of your income can be allocated to monthly housing costs: the Gross Debt Service Ratio (GDS) and the Total Debt Service Ratio (TDS).

GDS Ratio: 

Most lenders recommend that you spend no more than 36 per cent of your gross monthly income (before tax) on combined housing costs – monthly mortgage principal and interest, taxes, utility costs and if applicable, 50 per cent of condominium fees.

TDS Ratio: 

According to most lenders, you should spend no more than 42 per cent of your gross monthly income to service your mortgage and cover other debts and obligations, such as vehicle payments. Keep in mind that these numbers are maximums. Try to keep your housing costs as low as possible for a more affordable lifestyle.

The federal Home Buyers Plan (HBP)

This plan allows first-time home buyers to withdraw up to $25,000 per person from their Registered Retirement Savings Plans (RRSP), without tax liability, to buy a home in Canada. You don’t have to start paying back your RRSP until two years after the purchase of the home. Before cashing in your RRSP to buy a home, weigh the pros and cons carefully. Consider the details of the Home Buyers Plan.

To be eligible for the Home Buyers Plan:

  • You need a written agreement to buy or build a home
  • You intend to occupy the home as your principal residence
  • You are a first time homebuyer
  • The money must be in your RRSP account for at least 90 days
  • Your HBP balance on January 1 of the year you withdraw has to be zero

To find out more about this program contact the Canada Revenue Agency.

Extra costs

There is more to buying a home than the down payment and mortgage. You need to budget another .5 per cent to 2 per cent of the price of your home for extras associated with the original purchase. Some of these costs include the survey fee, home inspection cost, title insurance, property insurance, land registration fees, land transfer tax, legal fees, goods and services tax, moving expenses and closing costs.

Credit report

Before making an offer on a house, you may want to review your credit profile to verify that the information your lender sees is accurate and up-to-date. A credit report gives a snapshot of your financial history, such as your previous and current debts and whether or not you’ve had any problems paying off those debts. We recommend that buyers check their credit report before shopping around for a house.  You can order your credit reports from Equifax and TransUnion.

Down payment

A down payment is the initial amount of money put towards buying a home. Depending on the type of mortgage, down payments generally range from 5 per cent to 20 per cent of the purchase price for first-time buyers. Keep in mind that the higher your down payment, the lower the interest costs over the life of the mortgage.

Mortgage loan insurance

Mortgages with less than a 20 per cent down payment, known as a high-ratio mortgage, are required by law to be insured against default. If you default on your mortgage, mortgage loan insurance pays back the mortgage lender. Mortgage loan insurance requires the payment of a premium, which is added to the amount of your mortgage – another good reason to make a larger down payment.

Getting your mortgage

When shopping for a mortgage, keep your goals and needs in mind. There are many options and a mortgage can be customized to meet your own circumstances.

Open vs. closed mortgage

An open mortgage allows you to pay off as much of your debt as you wish, whenever you want, without being charged a pre-payment fee. This option allows for flexibility, but interest rates are quite a bit higher on open mortgages. Closed mortgages have a set term and fixed conditions. With a closed mortgage, you may be able to make some prepayments each year without penalty, and, for agreeing to keep the mortgage for the full term, you get a more favorable interest rate.

Fixed rate vs. variable rate

A fixed rate mortgage has a set interest rate for the term of the mortgage; the rate does not fluctuate with market changes. With a variable rate mortgage, the interest rate rises and falls from time to time as market rates change.

OTHER APPLICABLE FEES

Monthly Fee: $0

Annual Fee: $0

Setup Fee: $0

 

Payments

Returned Payment  $99.75

Hold/Delay Payment  $82.00

Skip Payment   $82.00

Mid-term Change  $0.00

 

Renewals

Regular Renewal   $0.00

Early Renewal   $75.00

 

Discharges

Discharge East Coast   $380.00

Discharges in Ontario  $455.63

Discharges in Saskatchewan   $365.00

Discharges in Manitoba  $225.00

Discharges in Alberta  $0.00

Discharges in BC   $75.00

Discharge Reproduction in Ontario $25.00

Discharge Reproduction in AB, BC, SK, MB and East Coast $100

 

Assignments and Transfers

Assignments or Transfers in Ontario, BC and Alberta  $380.00

Assignments or Transfers NF $50.00

Assignments or Transfers NS $25.00

Assignments or Transfers PEI $25.00

Assignments or Transfers NB $85.00

 

Ports and Refinances

Mortgage Port $395

Qualified Assumptions $450

Non-Qualified Assumptions $1,000.00

Covenant Change $350.00

Bridge Loan Processing Fee $250 + prime plus 5%

Courier Fee $15.00

 

Statements

Annual statement Reprint   $25.00

Information Statements   $20.00