TD Mortgages change / collateral charges

[FlynBuy]

As seen below TD is changing the way they register mortgages. Does any have experience with Collateral charges? Looks like it could make refinancing a lot cheaper for RE investors. Any thoughts on the downside?


http://canadamortgagenews.ca/2010/10/08/in...cuffs-included/

Introducing the new TD mortgage…hand-cuffs included
October 8, 2010 — SG
The rumors are true…TD Canada Trust will begin registering all mortgages as collateral charges after October 18. (No official release from TD yet but a source inside TD has confirmed this to us).

What does this mean for the consumer? Well, there is some good but mainly it’s bad..…

a collateral mortgage is normally registered for floating or revolving debt such as a secured line of credit. It allows for the balance to float up or down.
TD will register a collateral charge for 125% of the loan amount… this will allow the client to come back at a later date and apply to increase their mortgage if needed….
in theory, it sounds great…no legal fees required in the future if you need to refinance… and easy approval…
BUT HOLD ON…

a COLLATERAL MORTGAGE is NOT portable…meaning you cannot transfer to another institution…you will lose some leverage to negotiate the rate when your mortgage matures…
and if you wanted to increase your mortgage in the future, you would need to reapply for approval…let’s suppose you don’t qualify in the future..not because your situation changed but because the Bank’s lending policy changes…this happens regularly….you would now have to seek out an entirely new 1st mortgage as no other lender would register a 2nd mortgage in behind a collateral first mortgage (at least none that I am aware of)… that could mean penalties, definitely legal fees and other costs….
It’s obvious that a big reason TD would be doing this is to improve mortgage retention.. this makes it less appealing to leave TD because of the costs….
BOTTOM LINE…this type of mortgage limits your options..it doesn’t expand them.. you MAY save on legal fees..but that’s not a big enough reason to go with this product..
My advise to anyone looking at a TD mortgage is to be careful…make sure you understand all the terms, conditions, the differences and the limitations…you be the judge… is this a good thing for the client or is it a good thing for the Bank?? Will other Banks follow? Some might say this is like putting handcuffs on the client… I tend to agree…

 

[JimWhitelaw]

Other banks already do this, particularly with hybrid mortgage/LOC products. I`m not sure I understand the portability issue. Portability usually refers being able to "port" an existing mortgage from one property to another, keeping the same terms. I don`t think it`s ever referred to portability between lenders. If you`re switching lenders, simply discharge and register a new mortgage. Maybe one of our resident brokers has more info.

 

[Thomas Beyer]

QUOTE (FlynBuy @ Oct 13 2010, 10:07 PM) ...
a COLLATERAL MORTGAGE is NOT portable…meaning you cannot transfer to another institution…..

I see only upside here for client with this new arrangement !

No mortgage is portable to another institution without them first qualifying the client !!

The oly exeption is a CMHC insured mortgage .. and then ONLY the CMHC insurance certificate is portable and any new bank will evaluate the client and the asset, but since the mortgage is insured will be more eager as the risk to bank is essentially 0 as CMHC will bail them out if you default.

I don`t see where the problem is here with this new TD approach .. besides house owners borrowing too much too easily !

 

[kboughen]

The downside is that it takes away the “no fee switch” option for home owners at the end of a Standard Mortgage Term. For example, at the end of a five year fixed rate Standard Mortgage Term, homeowners can shop around to different banks to see which bank offers the best rate to “switch” the mortgage to a new Bank, this is not a refinance, the balance and amortization of the mortgage stay the same, and there are no legal fees involved to switch to a new bank.

Now that TD has moved all mortgages to “Collateral Charges”, TD mortgages can no longer be switched to other Banks without legal fees being incurred.

 

[Jasonnugent]

QUOTE (kboughen @ Oct 17 2010, 11:27 AM) The downside is that it takes away the "no fee switch" option for home owners at the end of a Standard Mortgage Term. For example, at the end of a five year fixed rate Standard Mortgage Term, homeowners can shop around to different banks to see which bank offers the best rate to "switch" the mortgage to a new Bank, this is not a refinance, the balance and amortization of the mortgage stay the same, and there are no legal fees involved to switch to a new bank.

Now that TD has moved all mortgages to "Collateral Charges", TD mortgages can no longer be switched to other Banks without legal fees being incurred.


Kevin is right, for the average home owner this could cost them hundreds of dollars when their mortgage comes up for maturity since they can`t move to another lender without incurring new costs. This can severely limits their choices.

 

[bizaro86]

QUOTE (Jasonnugent @ Oct 18 2010, 01:53 PM) Kevin is right, for the average home owner this could cost them hundreds of dollars when their mortgage comes up for maturity since they can`t move to another lender without incurring new costs. This can severely limits their choices.

Realistically, it will probably cost TD`s borrowers at least this much money. Prepare to pay for new docs and legal fees, or pay the posted rate, which would typically cost much more than a few hundred dollars extra over the life of the loan. TD is doing this so they can grab extra margin on renewals, without losing as much business as that would otherwise entail.

Michael

 

[rharrap]

QUOTE (kboughen @ Oct 17 2010, 08:27 AM) The downside is that it takes away the "no fee switch" option for home owners at the end of a Standard Mortgage Term. For example, at the end of a five year fixed rate Standard Mortgage Term, homeowners can shop around to different banks to see which bank offers the best rate to "switch" the mortgage to a new Bank, this is not a refinance, the balance and amortization of the mortgage stay the same, and there are no legal fees involved to switch to a new bank.

Now that TD has moved all mortgages to "Collateral Charges", TD mortgages can no longer be switched to other Banks without legal fees being incurred.


Many borrowers may stop shopping around at renewal - knowing that there would be some pretty signifigant costs now to making a switch. They`re more likely now to just renew with thier existing lender, and very likely, less than the fully discounted rates they would probably get elsewhere.

I read somewhere that about 70% of clients just renew with their lender, and many of them are not at fully discounted rates. Depending on the size of your mortgage, that could be many thousands of dollars going right into the banks pocket. Always shop around! Even if the rate differential is only 5 or 10 points, it may still be worth it even if you do have to pay to switch!

 

[Oli]

Does this mean we can expect TD to introduce products such as mortgage + HELOC where the latter increases automatically as you pay down your mortgage (like you can do at RBC)?

Currently I have to contact TD every time I want to increase the HELOC.

 

[GarthChapman]

To hopefully add some clarity to this subject, here are details provided to mortgage brokers by our local Regional Sales Manager, TD Broker Sales, and copied here with her permission:Subject: UPDATE - New Mortgage Loan Agreement – The Introduction of a Collateral Charge for MortgagesSUMMARYWe wanted to provide you with further clarification and responses to some of the questions we have been receiving regarding the introduction of a Mortgage Loan Agreement secured by a collateral charge for mortgage applications submitted on or after October 18, 2010.
Why are we doing this?
At TD Canada Trust 20 times more customers refinance with us then switch their mortgage out using an assignment. We’re making changes that will make refinancing more comfortable by providing our customers with added flexibility and value. This change in how we document mortgages means that down the road, qualified customers, who choose to, can refinance without having to re-register and incur registration fees.

They will now have:
 The flexibility to register the collateral charge for a higher amount than the current loan agreement so that if a customer wants to increase their mortgage in the future they can reuse the existing collateral charge and not incur any new registration fees
 The flexibility to switch to another lending product by using the existing collateral charge without incurring registration fees

Registering the collateral charge for a higher amount (up to 125%) is just an option that customers can take advantage of if they think their credit needs will change in the future and takes into account future appreciation of the property and the equity built up through payments over time. There is no change to our current lending guidelines for mortgages and we will not lend more than 95% of the value of the property.

Under what conditions can a customer reuse the existing collateral charge in the scenarios described above?
The following will apply:
 A new credit application and approval is required, including an evaluation of the property value
 The new credit request cannot exceed the amount of the existing collateral charge
 There can be no changes to the title of the property since the time of the registration of the collateral charge
 There can be no subsequent mortgages/charges registered on title since the time of the registration of the collateral charge


Who is impacted by the changes?
These changes only apply to new mortgage applications going forward and have no impact on existing mortgage customers.

Have you changed your mortgage products?
No, there are no changes to how the mortgage operates, only the way we document the mortgage has changed:
 Interest is compounded in the same manner
 The same fixed and variable interest rate mortgage products/features are available
 For fixed interest rate mortgages, the rate remains fixed for the term selected and cannot be changed unless the customer enters into a renewal agreement
 For variable interest rate mortgages, no changes unless the customer enters into a renewal agreement

Will there be changes to how we report mortgages to the credit bureau?
No, mortgages will be reported in the same way.

Are TD mortgage products secured by a collateral mortgage portable?
Yes, there are no changes to our port policies.

Are TD mortgages secured by a collateral charge assumable?
Yes, there are no changes to our assumption policies.

Are collateral mortgages assignable?
Yes, just like conventional mortgages, by law a mortgage holder is legally obligated to assign a collateral charge if requested by another lender on behalf of the customer or where the customer directs the mortgage holder. A new lender may not want to take an assignment of a collateral charge, but it is an option. In any event, most lenders prefer there own version of security.From our experience, most mortgages are discharged and assignments are only provided in about 1% of the situations. We chose this process for documenting mortgages because it offers the best benefits for most customers. Twenty times more customers refinance with us than switch out using an assignment of mortgage so we saw this change as one that would benefit the most number of customers in terms of flexibility and savings on cost. When talking to most brokers they have informed me that on average they have added new money to 9 out of every 10 transfers they have done, which shows that direct switches are about 1% - 5% of the broker portfolio.
Does TD still accept new mortgages where the mortgage will be obtained using an assignment of mortgage?
Yes, we will continue to accept an assignment of mortgage of another financial institution’s approved conventional charge.

Can you register a second mortgage behind a collateral mortgage?
Yes, a mortgage can be registered behind a collateral charge.

How do I submit an application with a request to register the mortgage for a higher amount?
When completing a mortgage application on or after October 18, 2010:
• If your customer is requesting to register their mortgage for an amount greater than the principal amount of the mortgage:
o Enter the amount of the register charge in the “comment” section of the Expert system.
Example: “Register collateral charge in the amount of $XXX.XX. The mortgage amount will be $XXX.XX”.


Has the commission matrix changed?
No, commission will continue to be paid on the mortgage amount that is advanced and not the amount of the registered collateral charge.

 

[bizaro86]

Thanks for posting this Garth!An easy way to determine whether TD (or anyone else) is doing something for the benefit of the their customers is to ask if they`re willing to do it the old way. If TD is truly doing this for the benefit of their customers they`d be still willing to do a conventional security arrangement. After all, they`re still willing to take conventional security on the transfer of a mortgage, so it`s not like its insufficient for their needs.Michael
QUOTE (GarthChapman @ Oct 25 2010, 06:40 PM) To hopefully add some clarity to this subject, here are details provided to mortgage brokers by our local Regional Sales Manager, TD Broker Sales, and copied here with her permission:

Subject: UPDATE - New Mortgage Loan Agreement – The Introduction of a Collateral Charge for Mortgages

SUMMARY

We wanted to provide you with further clarification and responses to some of the questions we have been receiving regarding the introduction of a Mortgage Loan Agreement secured by a collateral charge for mortgage applications submitted on or after October 18, 2010.

Why are we doing this?
At TD Canada Trust 20 times more customers refinance with us then switch their mortgage out using an assignment. We’re making changes that will make refinancing more comfortable by providing our customers with added flexibility and value. This change in how we document mortgages means that down the road, qualified customers, who choose to, can refinance without having to re-register and incur registration fees.

They will now have:
 The flexibility to register the collateral charge for a higher amount than the current loan agreement so that if a customer wants to increase their mortgage in the future they can reuse the existing collateral charge and not incur any new registration fees
 The flexibility to switch to another lending product by using the existing collateral charge without incurring registration fees

Registering the collateral charge for a higher amount (up to 125%) is just an option that customers can take advantage of if they think their credit needs will change in the future and takes into account future appreciation of the property and the equity built up through payments over time. There is no change to our current lending guidelines for mortgages and we will not lend more than 95% of the value of the property.

Under what conditions can a customer reuse the existing collateral charge in the scenarios described above?
The following will apply:
 A new credit application and approval is required, including an evaluation of the property value
 The new credit request cannot exceed the amount of the existing collateral charge
 There can be no changes to the title of the property since the time of the registration of the collateral charge
 There can be no subsequent mortgages/charges registered on title since the time of the registration of the collateral charge


Who is impacted by the changes?
These changes only apply to new mortgage applications going forward and have no impact on existing mortgage customers.

Have you changed your mortgage products?
No, there are no changes to how the mortgage operates, only the way we document the mortgage has changed:
 Interest is compounded in the same manner
 The same fixed and variable interest rate mortgage products/features are available
 For fixed interest rate mortgages, the rate remains fixed for the term selected and cannot be changed unless the customer enters into a renewal agreement
 For variable interest rate mortgages, no changes unless the customer enters into a renewal agreement Will there be changes to how we report mortgages to the credit bureau?No, mortgages will be reported in the same way.Are TD mortgage products secured by a collateral mortgage portable?
Yes, there are no changes to our port policies.

Are TD mortgages secured by a collateral charge assumable?
Yes, there are no changes to our assumption policies.

Are collateral mortgages assignable?
Yes, just like conventional mortgages, by law a mortgage holder is legally obligated to assign a collateral charge if requested by another lender on behalf of the customer or where the customer directs the mortgage holder. A new lender may not want to take an assignment of a collateral charge, but it is an option. In any event, most lenders prefer there own version of security.

From our experience, most mortgages are discharged and assignments are only provided in about 1% of the situations. We chose this process for documenting mortgages because it offers the best benefits for most customers. Twenty times more customers refinance with us than switch out using an assignment of mortgage so we saw this change as one that would benefit the most number of customers in terms of flexibility and savings on cost. When talking to most brokers they have informed me that on average they have added new money to 9 out of every 10 transfers they have done, which shows that direct switches are about 1% - 5% of the broker portfolio.


Does TD still accept new mortgages where the mortgage will be obtained using an assignment of mortgage?
Yes, we will continue to accept an assignment of mortgage of another financial institution’s approved conventional charge.

Can you register a second mortgage behind a collateral mortgage?
Yes, a mortgage can be registered behind a collateral charge.

How do I submit an application with a request to register the mortgage for a higher amount?
When completing a mortgage application on or after October 18, 2010:
• If your customer is requesting to register their mortgage for an amount greater than the principal amount of the mortgage:
o Enter the amount of the register charge in the “comment” section of the Expert system.
Example: “Register collateral charge in the amount of $XXX.XX. The mortgage amount will be $XXX.XX”.


Has the commission matrix changed?
No, commission will continue to be paid on the mortgage amount that is advanced and not the amount of the registered collateral charge.

 

[Detox]

QUOTE (bizaro86 @ Oct 25 2010, 07:35 PM) Thanks for posting this Garth!

An easy way to determine whether TD (or anyone else) is doing something for the benefit of the their customers is to ask if they`re willing to do it the old way. If TD is truly doing this for the benefit of their customers they`d be still willing to do a conventional security arrangement. After all, they`re still willing to take conventional security on the transfer of a mortgage, so it`s not like its insufficient for their needs.

Michael

I was wondering if anyone has additional thoughts on TD`s collateral charge mortgage. I`ve spent some time talking to TD and to independant mortgage brokers and I am ultra confused.

Here is my dilemma/situation,

I am currently with TD, conventional mortgage paying P + 0.25%. I wanted to take advantage of today`s great rate, and TD`s mortgage broker had no problem approving me for P-0.75%. Here`s the catch, the new mortgage will be registered as this new collateral charge mortgage which I am uneasy about.

My wife and I have no debt (other than the mortgage) and we do not plan to use any of the features of the collateral charge mortgage such as borrowing from the equity in our home.

I have 4 years left on my 5 year term and have considered paying the penalty to take a P - 0.75% at another institution in order to remain as a conventional mortgage.

Am I being paranoid? TD claims they will still be very competitive at the end of the term and that the collateral charge mortgage is really no different than the conventional mortgage I have now. I am also uneasy how this collateral charge mortgage will affect my credit rating (as a liability?) if wish to apply for car loans etc in the future.

Any thoughts? I am very confused.........

Many thanks,

Detox

 

[Thomas Beyer]

QUOTE (Detox @ Nov 10 2010, 02:15 PM) ..

Am I being paranoid?
yes .. most likely !

QUOTE (Detox @ Nov 10 2010, 02:15 PM) ..

Am I being paranoid? .. I am very confused.........
why are you confused ?

Where is the problem ?

 

[bizaro86]

QUOTE (Detox @ Nov 10 2010, 01:15 PM) TD claims they will still be very competitive at the end of the term and that the collateral charge mortgage is really no different than the conventional mortgage I have now.

The potential issue is that TD might have a different opinion of what is competitive at the end of the term than you do. If that`s the case, you`ll have to pay legal fees to get a new mortgage from a different institution. That`s the worst case scenario that I can see.

It doesn`t make sense to pay a penalty and legal fees to avoid paying legal fees in the future. It might make sense to pay the penalty if you can get a better rate than P-0.75 from another institution, but I wouldn`t pay the penalty just to avoid the collateral charge.

If all other things were equal, I`d probably avoid TD, but all other things are not equal in this case, since you`d have to pay a penalty to avoid using TD.

As to its effect on getting personal debt, I can`t imagine it`ll make any difference, since you have to disclose your financial situation anyway.

Regards,

Michael

 

[Detox]

QUOTE (bizaro86 @ Nov 10 2010, 02:48 PM) The potential issue is that TD might have a different opinion of what is competitive at the end of the term than you do. If that`s the case, you`ll have to pay legal fees to get a new mortgage from a different institution. That`s the worst case scenario that I can see.

It doesn`t make sense to pay a penalty and legal fees to avoid paying legal fees in the future. It might make sense to pay the penalty if you can get a better rate than P-0.75 from another institution, but I wouldn`t pay the penalty just to avoid the collateral charge.

If all other things were equal, I`d probably avoid TD, but all other things are not equal in this case, since you`d have to pay a penalty to avoid using TD.

As to its effect on getting personal debt, I can`t imagine it`ll make any difference, since you have to disclose your financial situation anyway.

Regards,

Michael


I am tryingto get a gauge on what the "fees" are if I decide to leave at the end of the term. I know there is a discharge fee and some legal fees to register at the new institution, but what range are we talking? ($1000/$2000/$3000)?

Also, at the end of my term when I go out and shop around again, will other financial institutions be less likely to want to do business with me because I have a collateral charge mortgage?

And, how will a collateral charge mortgage vs. a conventional mortgage effect my credit rating to say shop for a car loan etc in the future. From what I understand, a conventional mortgage does not show up on a credit report, a collateral mortgage does as a liability.

I appreciate the quick responses and apologize for the trivial questions

Many thanks,
Detox

 

[Detox]

QUOTE (Detox @ Nov 10 2010, 04:14 PM) I am tryingto get a gauge on what the "fees" are if I decide to leave at the end of the term. I know there is a discharge fee and some legal fees to register at the new institution, but what range are we talking? ($1000/$2000/$3000)?

Also, at the end of my term when I go out and shop around again, will other financial institutions be less likely to want to do business with me because I have a collateral charge mortgage?

And, how will a collateral charge mortgage vs. a conventional mortgage effect my credit rating to say shop for a car loan etc in the future. From what I understand, a conventional mortgage does not show up on a credit report, a collateral mortgage does as a liability.

I appreciate the quick responses and apologize for the trivial questions

Many thanks,
Detox

Just wondering if anyone had input to my silly questions above.

 

[kboughen]

-----------------------------------------------------------------------------------------------------------
I am tryingto get a gauge on what the "fees" are if I decide to leave at the end of the term. I know there is a discharge fee and some legal fees to register at the new institution, but what range are we talking? ($1000/$2000/$3000)?
------------------------------------------------------------------------------------------------------------


In Ontario, I would budget for legal fees of $699 plus HST, plus $71.30 payable directly to Ministry for registration. The current Lender will charge a discharge fee of around $300.

 

[Detox]

QUOTE (kboughen @ Nov 12 2010, 08:57 AM) -----------------------------------------------------------------------------------------------------------
I am tryingto get a gauge on what the "fees" are if I decide to leave at the end of the term. I know there is a discharge fee and some legal fees to register at the new institution, but what range are we talking? ($1000/$2000/$3000)?
------------------------------------------------------------------------------------------------------------


In Ontario, I would budget for legal fees of $699 plus HST, plus $71.30 payable directly to Ministry for registration. The current Lender will charge a discharge fee of around $300.


Thanks, is there an additional cost (addition to above) to register the mortgage with the new institution. I checked the TDs mortgage document for the proposed collateral charge mortgage, and it clearly states their discharge fees at the end of term works out to be about $890. So a total cost to leave is probably $890 + above + ??

The conditions in the collateral charge mortgage document look very similar to my conventional charge mortgage document.

Other main points are:

1. Regarding interest on the collateral charge papers it says in one spot calculated daily, monthly and in another spot it says semi-annual. Not sure the difference. Where as in my conventional charge mortgage it says semi-annual only.

2. Regarding "Residential Prime" rate is states, I am assuming this is regular bank prime, specific to each institution. Not some `special prime` only for collateral charge mortgages at that institution (in other words should be no different than my conventional charge mortgage)

3. Not sure how the collateral charge mortgage is presented to the bereau (vs conventional). I have no debt at the moment except the mortgage and do not want to worsen my opportunity to get a car loan, or mortgage for another real estate property etc. If anyone can comment on this as well it would be greatly appreciated.

Many thanks

Detox

 

[bizaro86]

QUOTE (Detox @ Nov 12 2010, 10:14 AM) 1. Regarding interest on the collateral charge papers it says in one spot calculated daily, monthly and in another spot it says semi-annual. Not sure the difference. Where as in my conventional charge mortgage it says semi-annual only.

2. Regarding "Residential Prime" rate is states, I am assuming this is regular bank prime, specific to each institution. Not some `special prime` only for collateral charge mortgages at that institution (in other words should be no different than my conventional charge mortgage)

These are questions you should really ask your broker/banker. If your mortgage is unclear, have someone explain it to you. Its not impossible for them to make a mistake preparing the documents.

Michael

 

[Detox]

QUOTE (bizaro86 @ Nov 12 2010, 11:16 AM) These are questions you should really ask your broker/banker. If your mortgage is unclear, have someone explain it to you. Its not impossible for them to make a mistake preparing the documents.

Michael


I setup a meeting with the bank to discuss the terms/conditions of the collateral charge mortgage. I was very unimpressed with their lack of knowledge, I spent an hour and half with one of their specialists who spent the entire hour and a half on the phone with "someone from the back office" (they refused to give me the person on the telephone`s name for my records) in order to get some clarification.

1. Residential prime for collateral charge and conventional charge is the exactly the same, flucuating as you would expect.

2. I`ve been assured the algorithm for calculating the interest on a variable collateral and variable convetional is exactly the same.

3. The interest rate for your mortgage term (eg. Prime - 0.75%) is protected at the rate for the duration of term (provided no default payments, refinancing etc).

4. A collateral charge mortgage is reported to the credit bereau and will show balance owing. A conventional charge mortgage is not reported.

5. A HELOC is only added if requested by the client, this is reloving credit and subject to an interest rate increase up to Prime + 10% at the whim of the bank.

6. You must request the amount registered (eg. 90% up to 125%). Other financial institutions will be able to see how much you are registered up to and if over 100% will most likely not do business with you due to increased liability.

7. If you do take advantage of the HELOC both the mortgage and HELOC must be paid before the mortgage can be discharged to another institution. Of course no other institution will pay your HELOC, so best to make sure the balance is zero at time of renewal or your screwed.

8. Cost to discharge at end of term will be $260 + $260 + $300 + $70 (bank charges) + legal fees and registration with the new lender. So a guess of $1500 is accurate.

Hope this helps anyone with anyone else`s confusion.

My take on this is....

If you are shopping around because you are at the end of your term and you do not plan to borrow equity from your house avoid TD and their collateral charge mortgage. There really are no benefits other than the abillity "easily" borrow money from the equity in your home.

Thanks,

Detox

 

[bizaro86]

QUOTE (Detox @ Nov 23 2010, 07:54 AM) I setup a meeting with the bank to discuss the terms/conditions of the collateral charge mortgage. I was very unimpressed with their lack of knowledge, I spent an hour and half with one of their specialists who spent the entire hour and a half on the phone with "someone from the back office" (they refused to give me the person on the telephone`s name for my records) in order to get some clarification.

This alone seems like a good reason to avoid them, at least for awhile. If they don`t understand the products themselves, they`re way more likely to make a mistake, since many bank employees work simply by rote, no critical thinking required. And trying to get a mistake corrected by a large, impersonal, Torontonian bureaucracy is much more difficult than getting it right the first time, so if there is an error, it may be a fight to get it fixed.

Thanks for getting back to us with the details though, as it helps all of us stay abreast what`s happening out there.

Michael