Another negative aspect of collateral charge mortgages

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As if collateral charge mortgages needed another knock against them, one broker is having trouble refinancing those clients who find themselves in an uninsured collateral charge product.

“I’m seeing a lot of collateral charge uninsured mortgages that we can’t transfer or the new lenders are unwilling to transfer,” Marc Crossman of Dominion Lending Centres Mortgage Mentors told MortgageBrokerNews.ca. “There are a couple lenders who will transfer a collateral charge, but they aren’t transferring uninsured collateral charge mortgages.”

The Bank of Canada cut its overnight rate target to ¾ per cent in late January and since then brokers across the country have received calls from clients inquiring about possible refinance options. However, some brokers are hesitant to entertain the idea at all.

“I have received numerous refinance requests, especially after the first couple days following the rate drop, but I’m not a fan of pushing refinances,” Don Blair of Mortgage Tech Corporation told MortgageBrokerNews.ca. “Because of the interest rate penalties that clients are going to pay, I’m pretty careful about giving anybody council to encourage them to incur the rate penalty unless I’m absolutely convinced with numbers in front of me to do so.”

Still, for some clients it makes sense to refinance at the time. And Crossman is frustrated by his inability to help those with collateral charge mortgages.

“Typically, the clients who have collateral charge mortgages are those who put down 20 per cent or more and took out a line of credit that was registered as a collateral charge,” Crossman said. “So refinancing those … we’ve started the process and as we’ve clarified the situation we can’t transfer that.”
  • Jake Abramowicz on 2015-02-12 12:06:36 PM

    "not a fan of refinancing"? Did I read that right? Obviously no one is if the numbers don't make sense. I do this calculation for people all day long, and I can't believe I just read that line. Refinancing is a huge value-add to our business and a good source of income. It also helps people by putting them on a low-rate debt relief track. I would never shy away from it unless the numbers proved otherwise.

    As for the difference between refi and switch - i'm confused here. Why would you have an issue refinancing a collateral-charge client? There's a refi cost to pay, obviously. Or did they mean there's a difficulty in SWITCHING a collateral-charge client? If so, then why not just set up with a good lawyer and offer to pay client's legals? That's what I do in some cases, if the numbers make sense for everyone.

  • George on 2015-02-12 12:15:18 PM

    How is this 'Another Negative aspect for collateral mortgage" new. This is not new and has been the major issue with collateral charges. The author makes it sound like this is yet ANOTHER issue. In fact, this is common knowledge and has always been the case. Maybe the author is short of good stories ad needs to do something. Complete waste of time here.

  • Hugo Dos Reis on 2015-02-12 12:18:57 PM

    I don't agree here. Collateral charge mortgages or HELOC's are excellent products for many clients. In regards to not being able to transfer them, the only limitation is the additional costs (appraisal + legal) associated with refinancing them with a new lender. Most clients won't bother transferring if they have to incur additional fees. It's also a challenge to bring them to another lender as the current lender will usually offer an incentive to keep them in house.
    However, if the numbers make sense and your client is able to get a better deal then there should be no reason to avoid proceeding. I would even consider paying the legals+appraisal if there was money to be made and value added to client. The alternative is not getting the business or income and losing out on future opportunities with client.

  • Debbie on 2015-02-12 12:20:32 PM

    I think that's what he said, if the numbers don't make sense...there isn't a lot of room on rate anymore, and refinance has basically fallen off the radar now that there has to be 20% equity. Of course you know that anything outside a switch or transfer is now called a refinance right Jake? It doesn't make sense and simply can't happen just for a lower rate anymore,because 10BPS won't cover the cost of the refi. I don't think that is what the writer was referring to though. This one has the equity and it makes sense to switch, but can't because of the collateral-charge. Just my take on what I read.

  • Omer Quenneville on 2015-02-12 1:38:18 PM

    I can't believe this mortgage broker. I have been advising my clients for years to avoid collateral charge for this very reason and this broker is frustrated to only find out now the pitfalls? Sorry to be negative but what kind of advice have you been giving your client's over the years? You couldn't have been warning them if you didn't know yourself and you should have known.

  • Debbie on 2015-02-12 2:22:07 PM

    I can tell you that when you sign a TD commitment, there was always a question of how you wanted it registered, as a collateral charge or just for the actual amount. I always advised my clients to sign for just what was being advanced. Recently (a couple years) I discovered that it didnt matter what they signed, it was still registered as a collateral. Why even have that in the commitment if it meant nothing? For that reason, I only used TD when absolutely necessary. Rules are constantly changing, and banks seem able to make their own rules as they go along. I'm not complaining just stating a fact.

  • Bev Gay on 2015-02-12 6:22:07 PM

    Who ever thought we could transfer a conventional collateral. if its worth it pay the client will pay the fee.

  • mike rice on 2015-02-12 7:53:17 PM

    seems to me the issue is the broker won't get paid to shuffle the mortgage to another f\i. Is the broker going to pay for the legal fees when transferring the mortgage? If the mortgage is refi'd at the originating f\i there are no legal fees. Lot's of benefits to collateral mortgages....

  • Jonathan Askew on 2015-02-13 7:30:10 AM

    It looks like Dominion is not training its people. How could anyone not know that banks do not like to transfer collateral charges. Why do they think TD changed its lending practice. To preserve is customer base. That was good business. To say that typically collateral charges are a secured line once again shows his lack of knowledge. Mabe a combination of blended payments and line but the broker would have to be stupid to put their client into a pure line unless it was what the client really needed. A line is at a much higher interedt rate that a variable. Anyway enough said.

  • Omer Quenneville on 2015-02-13 8:18:43 AM

    TD Banks promotes its high retention rate. This is how they do it. That's why they have those green chairs. Because once you sign, you are not leaving so get comfortable. I don't believe for a second that a "collateral charge" is good for anyone but the bank. But I also believe in choice and if TD wants to offer this, they should be forced to explain the limitations and expense it adds. The consumer believe that all banks are the same and this is simply just not the case when it comes to TD. Again it is not the product, it is the lack of clarification.

  • Jake Abramowicz on 2015-02-13 8:30:03 AM

    this comments section is the definition of beating a dead horse.

  • John W on 2015-02-13 10:06:03 AM

    Another useless article. They must have trouble finding useful info to write about.

  • Adrian on 2015-02-16 9:19:00 AM

    Nothing new here. Collateral mortgages have deeper issues than this. All who think they are a good fit for more than a very small portion of your client base should do more investigation on collateral mortgages. If you are allowing your FI to force a collateral mortgage on your client ie TD, when the client has no actual use for a collateral mortgage, you are not acting in their best interest period. Until you understand the small print you are not educated enough to sell this product to anyone.

  • Mortgage Delivery Guy on 2015-02-18 2:55:44 PM

    While the pain is true as a mortgage professional, i dont expect changes any time soon.
    All i can do is educate clients so that they understand the implications of collateral charges & dodge the potential pitfall.

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