I have said this previously and while some people disagree, I say there are reasons why I believe this is correct.
So what is a Collateral mortgages and why are they the death to your mortgage rights. To truly address the reason behind this questions, it to understand what is a collateral mortgage?
This type of mortgage is basically a promissory note or loan agreement secured by the collateral security of a mortgage against your home.
Several lenders will offer you the ability to have your mortgage registered for up to 125% of it’s value.
For example, the Bank could register a collateral mortgage for $275,000 ($220,000 x 125%) but you’d only receive $176,000. ( 80% of $220,000).
This does allow you to go back to the same lender and borrow more money (up to the registered limit - (if they approve) without having to register another mortgage.
Here is the big word "IF"--if they approve the client again". That is something that most customer do not hear, IF YOU GET APPROVED, also this is not the way the bank sell it to the clients. They just tell them when they require more funds to just come on down.
But we all know things happen in life and sometime some bad things happen where credit has been damaged.
I had such a case recently, the client overall credit was good, but because of the way the bank calculates the rental income, the client no longer was approved. It was funny they had no issue giving them the money previously, but they do not like the clients to much now! They were not approved. In this scenario, the client would normally got to a private company for a 2nd mortgage as this client had lots of equity in their home. But guess what?
Because they had a collateral mortgage, no 2nd mortgage company could help them, even though they had equity. Also to add insult to injury, the client had to break their mortgage as no Private mortgage company would go behind a Collateral mortgage. the client had to break the 1st mortgage, pay a huge pre-penalty in order for them to get their 2nd mortgage. total cost to the client?
Over $20,000 dollars plus their interest increased to 4.99% from 2.99% because they no longer qualified for a regular mortgage at their bank. All because they had a collateral mortgage. The client's bank took the client mortgage rights to take advantage of their equity and in turn cost the client more then they ever imaged.
The bank did not do right for the client...that is why I SAY NO TO COLLATERAL MORTGAGES!
use a mortgage broker where they know all the mortgage that suite your life style the best...
Vittorio Oliverio www.cpmg.ca