If you’re shopping for a mortgage, you’re probably on the hunt for the best interest rate. You may go back and forth about signing on for a variable or a fixed interest rate. But many borrowers never think to ask whether the mortgage will be secured as a standard charge or a collateral charge. In fact, if you asked a handful of homeowners, many would likely say they don’t know how their mortgage is secured.

Here’s an explanation of what each term means — and how they could affect future borrowing.

Standard charges

If your mortgage is secured as a standard charge, that means it’s registered with the Land Titles Office for the exact dollar figure of the mortgage. For example, if the mortgage is for $200,000, it’s registered for $200,000.

Collateral charges

If your mortgage is secured as a collateral charge, it may be registered for more than the value of the mortgage. So, a $200,000 mortgage could be registered for $250,000. This gives you, the homeowner, some flexibility with future borrowing. It could allow you to acquire another mortgage or a home equity line of credit (HELOC), without paying additional legal or administrative fees. If your mortgage is secured with a standard charge, you may have to pay hundreds of dollars when you explore additional borrowing down the road.

When you opt for a collateral charge, you’ll need to put some thought into the amount you wish to register the mortgage for. Consider whether you may renovate the property in the future, as an example, and how much that could cost. Your lender will be able to help you decide on that final figure.

A mortgage secured as a collateral charge is generally not transferable to another financial Institution. This doesn’t mean you have to stay with your original lender. But be aware there will be legal fees and administrative costs if you wish to move your mortgage to another bank. But sometimes, if a lender is eager for your business, they’ll find a way to make sure those fees don't get in the way of finalizing your deal.

 
What happens when the mortgage is paid off?

Let’s skip ahead to that incredible day when you pay off your mortgage. If you have a standard charge mortgage, your lender will either discharge the mortgage security automatically or upon your request. The mortgage security on a collateral charge mortgage can’t be discharged until all the loans secured by the charge are repaid.

According to the Financial Consumer Agency of Canada, some lenders register all mortgages as collateral charges, some use only standard and others use both.

We know these details can be confusing. Start your conversation with your lender by asking: how will my mortgage be registered? They’ll be able to walk you through the offer and explain the pros and cons.