Another negative aspect of collateral charge mortgages

Another negative aspect of collateral charge mortgages

Another negative aspect of collateral charge mortgages 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.”
14 Comments
  • Jake Abramowicz 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.
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  • George 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.
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  • Hugo Dos Reis 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.
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