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Hunting For A Lower Mortgage Rate Could Cost You
 March 3 2016     Posted by

Moving a collateral mortgage could set you back $1,000


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OTTAWA – Homebuyers tend to shop around for the best mortgage rate they can find when first purchasing a property.

But when renewal time comes around, chasing the best rate might not save enough to offset the costs of moving lenders.

Frank Napolitano of Mortgage Brokers Ottawa says the cost of moving a mortgage at renewal time will depend on the type it is.

For example, on a standard mortgage, the costs of moving may be minimal and the lender who is taking over the loan may be willing to absorb them.

However, on a collateral mortgage, the fees will be more.

Documents required to get the best mortgage rate »

A standard mortgage is registered for the actual amount of the loan, while a collateral mortgage allows a home to be used as security for more than one loan. The downside is that changing lenders with a collateral mortgage entails paying both discharge fees and new registration fees.

“With a collateral mortgage you can’t just move the mortgage from one institution to another without incurring either legal fees or title insurance fees,” Napolitano says.

“Therefore the interest rate savings have to be in place in order for you to make it worthwhile to move from one institution to another.”

Napolitano estimates the costs to move a collateral mortgage can be close to $1,000 after they are all added up.

If you have a home equity line of credit in addition to your mortgage, you very likely have a collateral mortgage.

But even those who don’t may still have one and it may be necessary to read the fine print on the mortgage or to call the lender to find out and determine what the costs of moving may be.

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To know if it is worthwhile to move lenders, you need to calculate what the savings might be compared with the cost of moving.

“If its five or 10 basis points, the savings may not be there,” Napolitano says.

“If we’re talking a quarter of a percentage point, the likelihood is there that you’re better off to move it from one institution to another.”

Barry Gollom, vice-president for mortgages and lending at CIBC, says while collateral mortgages can be more expensive to switch between lenders they offer flexibility in other ways.

Collateral charges allow you to use the home as the basis for more than one loan and borrow more in the future more easily.

“But what you can’t do, as rule, is do an assignment or transfer of a collateral charge from one institution to another institution,” Gollom said.

Gollom adds that whatever a mortgage borrower does has to make sense in the context of their overall financial plan.

“In the months leading up to the renewal or maturity date, it is a great opportunity for the client, for the individual to meet with their financial adviser and look at their whole financial plan,” he said.

Comment by Mel Gilbert

This article, taken from Money Sense's Facebook page, just scratches the surface when it comes to collateral mortgages. As the article says, this type of document prohibits transferring it to another institution, which means that the new mortgage with the new instuitution will have to be classed as a refinance. Today's mortgage rules only allow you to refinance to a maximum of 80% of the value of the home so, if you only took out the mortgage 5 years ago, it's very unlikely that you would have accumulated 20% or more equity yet. THAT means you're stuck with the original lender, for better or worse.

Most chartered banks send out their renewal offers boldly displaying their posted rates, which can be as much as 2 full percentage points (or more) higher than comparable discounted rates freely offered in the open market. And if you're dumb enough to sign that renewal agreement and send it in, then the bank is dumb enough to accept it and take your money!

But wait ... it gets worse. If you've had some temporary issues with paying on time or for some other reason the bank decides they don't want to offer you a renewal then, if you don't have 20% equity yet, you're stuck. You're going to have to sell your home and move because if the mortgage is not paid out on the maturity date, the bank WILL commence power of sale proceedings.

Our chartered banks represent some of the largest corporate institutions in the world and they have HUGE advertizing budgets designed to garner your business - but the advertizing doesn't always tell the whole story. There's more to a mortgage than just the interest rate, as you can see, and you need someone who's in your corner to steer you in the right direction, not just in the direction of whatever makes the most money for the lender. Call me for a free consult.




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