What is a collateral mortgage and how is it different from a conventional mortgage?

A collateral mortgage is registered against your property for more than the amount you actually borrow — sometimes for up to one hundred and twenty-five percent of the property's value. This allows the lender to advance you additional funds later (such as a home equity line of credit) without re-registering the mortgage, which saves legal fees down the road.

The practical difference is in what happens when you want to switch lenders. With a conventional mortgage, you can transfer your mortgage to a new lender at renewal without legal fees through a simple assignment. With a collateral mortgage, a switch often requires discharging the old mortgage and registering a brand-new one, which can cost hundreds to over a thousand dollars in legal and registration fees.

Collateral mortgages also affect your ability to get a second mortgage or home equity line of credit through a different lender, since the first lender's registration may already cover most of the property's value. Ask your lender and lawyer at closing whether your mortgage is being registered as collateral or conventional — the answer affects your long-term flexibility.