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CBC's Busting the Banks

By Natasha on Feb 18, 2013

CBC's Marketplace puts the spot light on banks in this broadcast: "Busting the Banks": Episode 15 of the 40th Season.  

Last month, I shared the Globe and Mail Article: "Banks tighten their squeeze to extract fees" which covered the cost of 'disloyalty' fees for breaking your mortgage but CBC does a great job of digging deeper to confirm three main areas of concern:

  1. Increased Banking Fees
  2. Investment Fees
  3. Collateral Mortgages (main topic for this article)

 

Let's shed some more light on this:  

1) Increased Banking Fees:  CBC gave one family a financial makeover to reveal where they were spending a lot of unnecessary money to the banks benefit on an annual basis.  They were offered the advice they needed through Money Coaches Canada (MCC) to save almost $1,000 per year in additional banking fees.  

 

2) Investment Fees:  Click Here to read CBC's review on Investment Fees ~ how the bank is majorly dipping into your Mutual Fund 'Investment' by charging excessive management fees.  

 

3) What's the beef with Collateral Mortgages? 

Mortgages can be confusing to consumers.  While rate is very important, there’s more to consider when choosing a lender and choosing between a Standard and Collateral charge mortgage is one consideration clients shouldn’t take lightly.

TD Canada Trust is the most recent lender that has changed their mortgages to a Collateral Charge. There are big differences between a standard and collateral charge mortgage which consumers need to be made aware of.

What is a collateral charge mortgage?

A collateral mortgage is loan attached to a promissory note and backed up by the collateral security of a mortgage on a property.  Collateral mortgages aren’t new in Canada.   Typically a collateral mortgage is registered for a secured line of credit, allowing the balance of the loan to float up or down depending on the customer’s use. 

TD’s Collateral Mortgage allows you to register up to 125% of your properties value.

A Collateral Charge mortgage makes it easier for you to tap into their equity of your home if property values rise (pro), although making it considerably more difficult to switch your mortgage to another lender when your mortgage is up for renewal (con).

While there is some positives with choosing a Collateral Charge lender I believe the Cons outweigh the Pros.  When discussing your mortgage options you need understand the differences and think ahead to make sure it’s a good choice for your personal situation.

The theory behind a Collateral Charge Mortgage is that it will allow the borrower to refinance at a future date or switch lenders at renewal time without having to pay legal fees, saving the you about $750 to $1000. However, you need to be aware that the the lender may not offer you the absolute best deal and they know it will cost you $750 to $1000 to leave them.  It's in their best interest to keep you.

CBC says it best in their article: Decoding Mortgages where "many experts are concerned that collateral mortgages mean less choice and flexibility for consumers.  One concern is that while it can be relatively easy to transfer your conventional mortgage at the end of your term to another lender, a collateral mortgage can be more complicated and expensive to move".

Warning: More and more lenders are automatically signing you up for this option without you even knowing it.  The banks put this collateral charge in the fine print of their mortgage documentation and while they used to include it in their mortgage commitment for the mortgage professional to discuss it further with the client, they have switched it so that the Lawyers are reviewing this option with you on the DAY you are signing for the mortgage.  

You can certainly opt out of this option but what concerns me the most is I have seen many situations already where the Lawyers aren't aware that the client can waive this option and simply have the client sign for it!  I've seen this with ING Direct and National Bank already.  It is from this experience that I bring this to the attention of the client before even acquiring the mortgage for their property.

If you would like more information on collateral and standard charge mortgages and how they could potentially impact your personal situation don’t hesitate to contact me anytime or leave a comment.

Tags: Busting the Banks, Increased Banking Fees, Collateral Mortgage, Investment fees, CBC Marketplace,

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