While working with my clients I discovered that many are unaware of the impact of collateral mortgages offered or simply implemented, often sneakily, by lenders. Let’s say you buy a place for $500,000. You ask your lender for a mortgage for $350,000 and are approved for the financing. Toronto Dominion, in particular, as well as Meridian, Tangerine, and ING will slap a collateral, blanket mortgage on your property for the market value of your place, so for $500,000. The bank sells these mortgages, but when they actually explain them to clients, they’re described as an opportunity for you to borrow more money, down the road, without legal fees and so forth. FALSE!
This is Machiavellian, to say the least. Fact is, the bank looks out for the bank and not for you.
The purpose of the collateral mortgage is primarily for the bank to tie your equity up and hold complete control over it and your house in the future.
If you have a car loan, line of credit, or a credit card with the collateral mortgagee, they can call (demand) those loans be paid by rolling them into your mortgage. They have the room to arrange this as they’ve blanketed your entire property, and as a result, they’ll have their claws in you and your pockets.
A huge discharge fee comes into play if you decide to switch lenders down the road. Switching to another lender is very difficult. Ironically, TD does not accept transfers from collateral mortgages.
You may be trapped with this lender, for a very, very long time.
If it sounds too good to be true, it is.
Borrow to empower, not to enslave.