• What is a Collateral MortgageWhat is a Collateral Mortgage?

    If it’s one question we get asked the most it is: “What is a Collateral Mortgage”? What are you talking about when you say collateral mortgage? Sometimes we chuckle because often times the client already has the product and they don’t know What is a Collateral Mortgage?

    Very simply, there are two types of mortgages: a conventional mortgage and a collateral mortgage. Most Canadians are familiar with a conventional mortgage. A conventional mortgage is similar to a car loan. You make your payments in the balance comes down. The mortgage balance can only go down.

    To better understand What is a Collateral Mortgage, think of it like a credit card. With a credit card you may have a limit of $5000, but since you already borrowed $1000, you can borrow another $4000 whenever you want. What is a Collateral Mortgage? It’s is a credit card on steroids! As an example, let’s say your home is worth $400,000. Most institutions let you borrow up to 80% of the value of the home which would be $320,000 in this case (80% of $400,000]. But let’s say again that you really only need $200,000 today to do some renovations. Well a collateral mortgage will allow you to borrow in the future more money whenever you require the funds up to $320, 000 without having to go through the legal process. The cash is readily available and allows you to access the equity in your home. Some institutions allow you to borrow up to 125% (TD Canada Trust) of the value of the home.

    Is a collateral mortgage is a good product? It depends on your needs.

    Advantages of a collateral mortgage:

    1. Flexible and convenient to borrow your equity when you require it.
    2. One stop shopping – easy to add a line of credit or another mortgage if equity permits.
    3. Good for clients who are happy and stable with their bank.
    4. Interest rate is generally much less than a credit card.

    We do our best to help our clients understand a collateral charge, but in many cases, nobody foresees problems in the future. At the time of signing, nobody seems to be bothered by the product. We will be happy to provide any answers to your questions so you can make a better choice. Only the client can answer whether the product it right for them!

    If you are still wondering What is a Collateral Mortgage, please don’t hesitate to call or write to us!

    Robert Floris is a Mortgage Broker. His office is located at 651 Fennell Avenue East in Hamilton, Ontario. If you would like to speak with Robert, he can be reached at 905-574-9200 #215. Alternatively, you can contact Robert here.

    If you would like to apply for a mortgage online, please follow this link.

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    Thanks for reading!

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