There are 2 types of mortgage loans when the lenders register their loan business. One is Mortgage (Real Mortgage), another is called Collateral Loan / Mortgage (also called mortgage by those lenders). Collateral Loan (Mortgage) has many types, like Secured Line Of Credit, Car Loan etc… There are 3 major differences to influence the borrowers in the future between Collateral Mortgage and Real Mortgage:
- For Real Mortgage, the compound interest MUST be charged every 6 months (semi-annually). The compound interest of Collateral Loan may be charged every month, quarter or bi-weekly and in advance.
- There is a legal fee (lawyer fee) involved in the future when switching after your maturity date for the Collateral Mortgage. It means you can switch for free to new lender for most real mortgage, but you have to pay a legal fee to switch your mortgage to new lender if your existing mortgage is a collateral mortgage.
- You may be declined for renewal if you loss your job for the Collateral Mortgage. For Real Mortgage, the law forces the lender renew your mortgage whatever you have job or not.
Some chartered banks, trust companies and insurance companies are providing the Collateral Mortgage. Like CIBC, TD, National Bank, ING, HSBC, Manual Life, London Life etc…
So when you compare the mortgage rates, you can’t just compare the rates directly. A Collateral Mortgage of 2.35% may be equal to a Real Mortgage of 2.50%. If you count the future legal fee, it might be equal to a Real Mortgage of 2.69%, because the renewal rates after maturity from most Collateral Mortgage lenders usually are much higher than the rates from many Real Mortgage providers and you will transfer to new lender after maturity date.