When you get a mortgage to buy a home, your lender will register the mortgage against that property – often called registering a “charge” or “lien”. This gives the lender the right to take possession of the property if the loan is not repaid as scheduled.
There are two types of charges a lender can register: standard or collateral. How your mortgage is registered can impact your renewal options, and future borrowing capacity.
A standard charge is registered for the actual amount of your mortgage. With this type of charge, if in the future you want to borrow more money using your home as collateral, you’ll need to apply and re-qualify. Your lender will be required to register a new charge, which may incur costs, such as legal, administrative, discharge and registration fees. It does give you the flexibility to change lenders at renewal or get a second mortgage or a home equity line of credit under the same charge.
A collateral charge can be registered at 100%-125% of the value of the property. This makes it re-advanceable meaning, the lender can lend you more money as your property value increases without having to refinance your mortgage. This is because the additional amount you want to borrow is already secured by the existing collateral charge. However, this type of charge makes it difficult to get secondary financing from another lender. If for any reason your lender declines your request for additional funds you would end paying fees and penalties to switch to another lender.
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