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Follow @bokauffmannCollateral Charge Mortgages or Standard Charge Mortgages?
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The mortgage world could be confusing – fixed vs. variable, term, amortization, pre payment and other privileges, restrictions, fees for breaking your mortgage early, porting, along with other fine details. And now homebuyers and owners need to consider between”collateral charge mortgages versus “standard charge” mortgages!
TD Bank announced that effective October 18, 2010 all new mortgages will be collateral charge mortgages. TD Bank joins the many credit unions that also offer only these types of mortgages. If you are considering a collateral charge mortgage it’s worth some investigation before you sign because while there are advantages, there are also some negatives to think about.
What are Collateral charge mortgages?
Collateral charge mortgages can make it easier for homeowners to tap into their equity if their properties increase in value, although making it harder for them to switch to another lender when their mortgages show up for renewal.
For TD Bank customers, they’ll now be able to register their mortgage for approximately 125% of the value at closing, that allows them to take equity out free of charge should their homes rise in value. The downside comes at renewal. For consumers who want to keep their options open at maturity, this isn’t the best product feature because collateral charge mortgages are hard to transfer to another lender. Which means if someone wants to change lenders for a better rate or product feature, they have to start from the beginning and pay new hips. Technically they can be assigned but lenders don’t accept the transfer. With regular standard charge mortgages, you can switch for free, although certain minor charges may apply.
The ability to take out equity is one of the primary options that come with Home Equity Lines of Credit, that are collateral charges for this reason. In these cases, clients want the ability to extract equity once they need it or as it becomes available. If you feel that there is a very good chance you’ll refinance to consolidate debt in order to extract equity for a renovation in order to invest, then a collateral charge mortgage can be a wise decision.
Standard Charge Mortgages
If you don’t believe that you’ll need to refinance or extract equity, then a regular standard charge mortgage will fit you fine, and it will give you the capability to move to another lender at renewal if you want to without incurring hips. In other words, it’s easier for you to maintain your options open.
Whenever the situation looks confusing and complicated, go to a mortgage professional, whose only focus is on mortgages and what each of their over 50 lender partners have to offer. They will analyze your situation and assist you to determine what’s right for you – collateral charge or standard charge mortgages, among the many other mortgage options and privileges that you need to consider.
For information on standard charge versus collateral charge mortgages, talk to an experienced Mortgage Professional.
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- Mortgage Rates: Why ‘Variable’ Rates may be a good choice (bokauffmann.com)
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