Client surprised by collateral charge mortgage requalification

Client surprised by collateral charge mortgage requalification

Client surprised by collateral charge mortgage requalification Collateral charge mortgages are often criticized for the barriers they place on client's ability to port their mortgage but one broker was frustrated when his client was forced to re-qualify with the same lender to access the collateral loan.

“One of my clients had to requalify for the extra 25 per cent collateral and the lender wanted all the paperwork done all over again to prove income,” Domenic Luciano of Verico Premier Mortgage Centre told “They forced him to do the whole process over again.”

According to Luciano, his wealthy client had $1.9 million in equity in his $2.6 million home and he wanted to access the collateral loan to send his kids to school. The original lender wanted his client to pay a blend and extend fee as well as a new registration fee to requalify for the mortgage.

The Department of Finance requires lenders to provide more disclosure for collateral charge mortgages than traditional mortgages. The website reads:

While many consumers continue to choose a traditional mortgage to secure their home loans, many are increasingly choosing collateral charge mortgages. The impacts of having a collateral charge mortgage may differ from traditional mortgages. For instance, switching between lenders may be more difficult. To make an informed choice, consumers need sufficient information to clearly understand the costs and consequences of collateral charge mortgages relative to traditional mortgages. The government will require enhanced disclosure, better equipping borrowers to understand these impacts.

Yet, according to Luciano, he – and the client – were caught off-guard when the lender forced the client to requalify.

Eventually Luciano rectified the situation by placing the mortgage with another lender.
  • Albert 2014-07-07 11:39:48 AM
    Collateral Charges allow the Lender to 'lend' more money to the client (usually at a future point in time) subject to the client qualifying for the increased amount. The broker needs to understand the difference between registering a collateral charge and borrowing/qualifying against the collateral charge.
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  • Gershon 2014-07-07 11:47:46 AM
    If the client is looking to increase his mortgage amount it is reasonable for the lender to requlaify.

    The advantage of a collateral charge in this case is that the client can save the legal fees if the new mortgage amount is equal to or less than the registered charge amount.
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  • Mike Rice 2014-07-07 11:48:25 AM
    I don't understand what the problem is?? FIs have to re-establish security value and ability to pay before advancing new funds.
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