Registered Charge Amount
The registered mortgage amount and the interest rate can be higher than the initial financed amount in order to guarantee other debts in the future.
For example, if you apply for a $320,000 mortgage loan to buy a house worth $400,000, the registered mortgage amount could be $400,000.
The lender and borrower enter into a credit agreement separate from the mortgage in order to arrange the credit terms. As a result, the actual interest rate applied to the loan, the loan amount and the credit terms are set out in various credit agreements between the borrower and the lender.
Securing Debt and Possibility of Additional Funds
A collateral charge mortgage can be used to secure the borrower’s existing and future debts. This mortgage allows the borrower to get additional funds up to the registered mortgage amount without granting a new mortgage every time. Since a new mortgage is unnecessary, the borrower does not have to pay any additional legal fees. However, additional funds are not automatically granted, and the borrower may have to re-qualify based on applicable credit standards and get approval from the lender.
The request for additional funds could be denied if the borrower’s financial situation has changed, for example due to the loss of a job. The request may also be denied if the value of the property is insufficient to secure the additional funds.
Possibility of Transferring a Mortgage to Another Lender (Subrogation in Quebec)
Collateral charge mortgages are not typically transferable. If the new lender agrees to the transfer, the borrower may have to pay fees. In the cases where the new lender refuses to allow the transfer, the borrower will have to get a new mortgage and will therefore need to pay the fees associated with the new mortgage preparation and registration[1].
Generally, all debts secured by the initial mortgage (principal, interest and fees) must be repaid to the initial lender. Fees apply to discharge the initial mortgage. If the borrower repays his mortgage loan before the end of the term, he will have to pay the applicable prepayment charge.
Discharging the Mortgage (also known as a “Release” or “Acquittance” in Quebec)
In the case of a collateral charge mortgage, the borrower can obtain a mortgage discharge once he has informed the lender and repaid all of the debts secured by the mortgage in full.