TD's New Standard: Collateral Mortgages
By Tess Vostner-Bell
November 15, 2010
TD Bank has overhauled its mortgage program, switching to collateral-charge mortgages which are similar to lines of credit. The idea is to make it easier for homeowners to tap into their home equity and much harder for them to change lenders when their mortgage comes up for renewal.
Other lenders offer variations of this mortgage type but TD is the first to use collateral mortgages exclusively. As of October 18, 2010 all TD mortgages will be collateral mortgages. Existing mortgages are not affected by the change.
TD is said to be encouraging employees to approve customers at 125% of a property's actual value under certain circumstances, so homeowners can easily borrow more money if their property increases in value. A hassle free way for homeowners to access home equity. However, on the flip side, collateral mortgages are difficult to transfer from one lender to another. Unlike traditional mortgages, a collateral mortgage must be paid in full to be canceled. What that means is, if someone wants to change lenders at any point (5, 10 or even 20 years in) they will have to pay out their collateral mortgage in full and renegotiate from scratch with the new lender.
Lenders have been scrambling to secure new business as competition among them is intensifying. Ongoing record low mortgage rates has contributed to the number of new buyers entering the market. Innovative products such as the collateral mortgage is TD's attempt to entice new buyers who expect to take advantage of their property's rising value and don't plan to shop around for better rates in the future.
Customers may under many circumstances choose to register their collateral charge for more than the approved principal amount of the mortgage, up to 125 per cent of the property value, an internal memo to its mortgage brokers stated. This will allow them to borrow additional funds in the future without having to re-register ... eliminating any solicitor and in-house registration fees.
When a homeowner decides that they would like to access the extra money they were approved for they will have to have a bank appraiser come out to inspect the home as funds are dependent on property values rising.
In the end, it all boils down to customer choice. Since TD no longer allows their customers to choose between a standard or collateral mortgage, it is up to the consumer to think ahead. If you think there is a high probability that you will refinance during your term, like the idea of a secured line of credit with your mortgage & like the terms and conditions TD is offering, then TD may be the best lender for you. If instead you do not foresee yourself wanting to refinance during your term, do not require a secured line of credit, like to shop around for the best mortgage deal going & do not want to start from scratch to switch lenders then TD may be a bank to avoid from here on in.
Customers need to be aware of both the pros and cons involved in any mortgage product they choose.
Until next time,