Collateral charge debate heats up

Collateral charge debate heats up

Collateral charge debate heats up The lack of transparency surrounding collateral charge mortgages at one big bank has sparked furious debate among mortgage brokers.

CBC’s Marketplace went undercover last week to TD Bank to see how transparent it was about collateral mortgages and the fine print associated with them; and, according to the segment, TD earned failing grades. The segment has, unsurprisingly, incited interest among mortgage brokers.

Many are calling for lenders to better explain the potential pitfalls of signing up for a collateral charge mortgage – something TD was charged with failing to do during the segment.

“An even bigger issue is a collateral mortgage combines the unsecured debt, debt that is unrelated to the mortgage, with the mortgage,” Lior, a reader wrote. “If a mortgagor defaults on their unsecured debt, for whatever reason, the bank can exercise power of sale on the home.”

And while many brokers have pointed out the potential positives of signing up for a collateral charge, the lack of disclosure is still an issue.

“The story of collateral mortgages should be summed up as a potential advantage to consumers combined with a definitive advantage to the lender; nothing wrong with collateral mortgages if they are presented with honesty, transparency and full disclosure,” Ron Butler of Butler Mortgage wrote on  “There is a consumer advantage to doing additional property lending without legal fees and there is a profound disadvantage to the consumer by reducing the ease of transferring a mortgage at maturity. In TD's case they do not offer any product other than a collateral mortgage so it is all the more important the client be properly informed and warned.”
  • John Greenlee 2015-03-05 12:01:10 PM
    Our office doesn't deal with TD very much.

    However; in fairness to TD, the last deal we did with them in the fall the commitment did have a clause that the client had to fill in regarding if they wanted the collateral mortgage charge or not.

    We were able to give the client the information on what this meant and they chose not to take the collateral charge.

    I am not sure if anything has changed since the fall in regards to TD's commitments. If it hasn't, it would be inaccurate to say that TD only allows a collateral charge.

    Either way there are advantages and disadvantages. I believe the collateral charge simply opens up another topic of education for the client.
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  • Chris Murphy 2015-03-05 12:06:38 PM
    Sorry John to advise you that little checkbox refers to the amount the lender can register; either for the mortgage amount or 125%.
    I checked that myself last year and was told by TD it's always a collateral mortgage.
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  • Allan Bowerman 2015-03-05 12:23:50 PM
    TD and Nat Bank only offer collateral charge mortgages. It has been this way for some time.
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