When shopping for mortgage you’ll probably ask about term, rate and payment frequency. But what type of mortgage are you getting? There are two types of mortgages: Traditional Residential Mortgages and Collateral Mortgages. The first option being widely known, Collateral Mortgages are not as recognized. When purchasing a home, it’s very important to understand your different options, and what each options means. Here’s everything you need to know about Collateral Mortgages:
What is a mortgage?
A mortgage is a legal document for borrowing money, usually from a bank, that gives the lender the right to take possession of your house if the loan is not repaid as scheduled. Once you obtain a residential mortgage from a lender, the lender will register the mortgage against your property.
What is Collateral Mortgage?
A collateral mortgage allows you to use your home as security for a loan or more than one loan and, potentially, borrow additional funds. Because a lender may register the mortgage for an amount that is more than your initial loan, you are able to change loans and other credit agreements without having to register a new mortgage provided the total amount owing is less than the principal amount of the collateral mortgage. A collateral mortgage is also used when some or all of the debts have a “revolving” feature, such as a credit line. A credit line is said to have this “revolving” feature because you can pay back some or all of the money from the credit line and you will still have continual access to the credit up to a predetermined maximum limit. You repay only the principal and the interest on the money you actually borrow.
What are the advantages of a Collateral Mortgage?
Collateral mortgages have three key advantages:
● The lender’s security is doubled because of the promissory note (a legal instrument in which one party promises in writing to pay a determinate sum to the other at a fixed time).
● If the higher property value is registered, collateral mortgages make it easier and quicker for homeowners to access equity.
● If you’re anticipating refinancing, a collateral mortgage is beneficial since it serves almost like a line of credit, with the available balance floating up and down depending on the customer’s use.
We serve all areas in the GTA, including Scarborough, Etobicoke, Markham, Mississauga, Brampton, Milton, Vaughan, New Market, Ajax, Pickering, Whitby, Oshawa, Richmond Hill, Oakville, Burlington, St-Catherine, Niagara, Kitchener, Waterloo and Cambridge. We represent individuals, corporations, small and large residential developers, homebuilders, small business owners and professionals.