Collateral Charge Mortgages: Smart Setup or Sneaky Trap?

You borrowed $600,000, but your mortgage is registered like you borrowed $750,000.

Why?

Because you probably have a collateral charge mortgage, and whether that’s a good thing or a bad thing depends entirely on how you plan to use it.

Let’s unpack what it really means, why banks use them, and how it could either unlock options for you… or quietly lock you in.

First Things First: What Is a Collateral Charge?

When you take out a mortgage, your lender registers it on the title of your home.

With a standard charge, they register exactly what you borrowed. $600K mortgage? It says $600K on title.

With a collateral charge, the lender can register up to 125% of your home’s value, even if you only borrowed a portion of it.

So if your home is worth $800K, your mortgage might be registered for $1 million.

Why would a bank do this?

Because it gives you (and them) more flexibility.

The Pros: Why Collateral Charges Can Be Helpful

This structure isn’t always a trap. In fact, there are a few key reasons why it might be a smart move:

1. You Can Access More Credit Later - Without Refinancing

Let’s say you’ve had your mortgage for a year, and now you want to add a HELOC or borrow extra funds for renovations.

With a standard charge, you'd likely need to refinance, requalify, and pay legal fees.

With a collateral charge? The bank can simply advance more funds; no lawyer, no new mortgage registration, no hassle.

2. You Can Borrow More Than Just Mortgage Funds

Collateral charges allow the lender to secure multiple types of debt under one agreement, like a HELOC, personal loan, or line of credit.

It can be a convenient way to manage your borrowing, especially if your financial situation changes during your mortgage term.

3. It Makes Sense If You’re Staying Long Term

If you’re planning to stay with your lender for years, and like the idea of having fast access to equity, this setup can work in your favour.

Some borrowers like having the option to re-borrow as they pay down their mortgage, and banks make that easier with this format.

The Cons: Why Collateral Charges Can Cost You Later

Here’s where things get tricky, especially at renewal time.

1. Harder to Switch at Renewal

Want to move to a new lender when your term is up?

Most lenders won’t accept collateral charge transfers. They only take standard charge files. I’m not saying they’re all saying no, but many won’t consider it.

That means you’ll have to refinance, hire a lawyer, and requalify for the loan, even if your balance and credit are in great shape.

2. Fewer Negotiation Options

Banks know you’re kind of stuck.

They know switching is a hassle, and they know other lenders generally won’t take the file without a full refinance.

So guess what?

They don’t have to offer you their best renewal rate, because most people don’t want the cost and paperwork to leave. Basically, you’re paying for the convenience of these additional products being available when you want.

3. You Might Be Securing More Than You Realize

Collateral charges can secure more than just your mortgage, they can also tie in other debt.

If you default, the bank could call in all of it, not just the home loan.

That’s rare… but it’s worth knowing.

How Do You Know If You Have One?

Here are some clues:

✔️ You’re with a Big 5 bank
✔️ You were offered a HELOC when you got your mortgage
✔️ Your mortgage is called “re-advanceable”
✔️ You’re told you can’t switch without refinancing

To know for sure, check your mortgage registration documents. You’re looking for the term:

“Collateral charge” vs “Standard charge”

When Is a Collateral Charge a Good Idea?

✅ You’re planning to stay with your bank long term
✅ You want easy access to equity down the road
✅ You don’t mind refinancing if you ever want to leave

If that’s your plan, it might be the right fit. No shame in that!

But if you value flexibility at renewal, want to shop rates easily, or plan to switch lenders in the future…

A standard charge might be the safer bet.

Final Thoughts

Collateral charge mortgages aren’t evil, but they’re not always explained clearly either. Honestly, many clients that come to me have no idea they have a collateral mortgage, they just think “oh awesome! my bank offered me a HELOC without having to do a bunch of paperwork!”

They give you more borrowing options during your term, but limit your freedom when the term ends.

If you’re a homeowner who wants flexibility now and later, ask the right questions up front. Questions like:

Is this mortgage a collateral or standard charge?
What happens if I want to switch lenders at renewal?
Will I need to refinance to leave?

Your lender may call it “flexible.”

Just make sure that flexibility works for you, not just for them.

Let’s investigate your mortgage together to see what kind of mortgage you have.
Jeff Dinsmore
Mortgage Broker
FSRA # 10315