In the news recently there’s been a lot of talk of how TD is now registering ALL their mortgages as collateral mortgages. Some say this is a good thing. I truly believe it’s not.
This isn’t to say TD is the only one doing this. Most credit unions do, and any time you bundle your mortgage together with a line of credit, credit cards, visas etc., the same collateral registration takes place.
This collateral can be registered at 100% of the home’s value, a little less, or in TD’s case, 125% of the home’s value.
However, in order to access the funds you have to re-qualify. Dumb.
Here’s just one example of why – besides the obvious fact that the banks are giving people access to too much debt – this is a bad thing.
For example, I work with a great couple who just celebrated – and paid for – two daughters’ weddings. They used their credit cards and line of credit to pay for this. Unfortunately, they missed a couple of payments and now their credit bureau rating doesn’t look so good.
The proposed solution would be to do a one year second mortgage to clear things up and then, in a year, redo their mortgage and roll everything into one.
Makes sense right?
Well in two words, they can’t.
To go back to their credit union to advance some of those funds they have available, they’ll need to re-qualify. And now, because of recent events and the toll they took on their credit rating, they won’t be able to re-qualify.
Now they’re stuck with too much debt and will struggle and struggle and struggle to keep their payments current.
Of course they should have consulted us first, however, when you’re in the moment and you have two girls on you for wedding money, your mind isn’t always there!
I just hope they can sustain the debt for another year or two so we can look at a solution at this time.
The Lesson?
Please MAKE SURE your mortgage is not registered as a collateral mortgage. The banks won’t tell you they’re doing it as it ties you into them and their one or two products. The only way out is to do a refinance.
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I’m Christos Gitersos and I’m “Your Money-Saving Mortgage Broker”. I work with clients in the Surrey and Langley Fraser Valley areas, from Vancouver to Chilliwack, and throughout BC. There isn’t a deal out there that’s too tough for me – I’ve been doing this a long time now – so if I can’t put together a mortgage for you, then no one can. And I want to put the right mortgage together for you – along with the right strategy and plan to help you achieve your home ownership goal…while saving money.