Independent Canadian mortgage brokers have long handled mortgage products – such as home equity lines of credit (HELOCs) – that major banks were more or less loathe to handle. Now, the Globe and Mail reports, some banks are beginning to offer “collateral mortgages” which, in many ways are similar to a HELOC.
Increased competition for new business, sparked by a slowdown in home sales and mortgage applications, has sent “lenders scrambling to secure new business with innovative products,” according to the Globe report. For the TD Bank, the Globe notes, this has meant “revamping its mortgage program, making it easier for homeowners to tap into their equity [yet] harder for them to switch to another lender when their mortgages come up for renewal.”
“At the heart of [TD’s] overhaul,” the Globe reports, “is a switch to collateral-charge mortgages, which are similar to lines of credit,” under which TD “is encouraging employees to approve customers at 125 per cent of a home’s actual value under certain circumstances, so the homeowner can easily borrow more money if their property increases in value.” However, “unlike traditional mortgages, the collateral mortgages are difficult to transfer from one lender to another, because they must be paid in full to be cancelled.” Other banks offer variations of the collateral mortgage, although the Globe reports that TD is the first bank to switch “exclusively” to a collateral mortgage product.
TD presents their new product as a means of ensuring “customers don’t pay additional charges to tap into their existing equity;” however, “[a] homeowner can’t simply call the bank and access the extra money they were approved for.” As TD’s collateral mortgage is premised on rising values, the bank has indicated it would need to undertake a home inspection prior to the release of funds.
The Globe reports that TD’s move has “sparked anger among the country’s independent mortgage brokers,” who have interpreted TD’s new program as “a direct shot” at their increasing market share. That is not necessarily a view held by all mortgage brokers, however. A well-resourced mortgage broker with access to a network of lenders offering a full spectrum of mortgage products will most often be able to arrange for a HELOC that carries a lower interest rate and offers more portability than a collateral mortgage or equivalent product offered by major banks.
While banks offer attractive prime mortgage rates, these rates are usually only available to a narrow slice of the bank’s best customers, and can (in most instances) be matched or bettered by a mortgage brokers wide network of traditional, non-traditional and private lenders.
