Archived - Backgrounder: Voluntary Commitments by Banks on Collateral Charge Mortgages

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What Are the Voluntary Commitments?

Economic Action Plan 2014 called on banks to enhance disclosure to consumers of the cost and consequences of collateral charge mortgages relative to conventional mortgages, better equipping borrowers to understand these impacts.

Eight major banks are voluntarily committing to provide information to consumers who are shopping for a mortgage loan so that, when finalizing their choice of product, consumers have enough information to understand the implications. The Canadian Bankers Association has also committed to the voluntary commitments on behalf of its smaller member banks.

What Is a Collateral Charge Mortgage Compared With a Conventional Mortgage?

A collateral charge mortgage is a type of mortgage that allows consumers to use their home as security for both a home loan and other borrowing such as a line of credit or car loan. With a conventional mortgage, the home is only used as security for the home loan.

While many consumers continue to choose a conventional mortgage to secure their home loans, many are increasingly choosing collateral charge mortgages.

What Are the Differences Between Collateral Charge Mortgages and Conventional Mortgages?

Collateral charge mortgages offer a number of advantages to consumers in the form of lower-cost financing and easy access to additional credit.

Collateral charge mortgages, however, have different impacts than conventional mortgages and some consumers may find it difficult to switch between different lenders.

Thus, consumers require sufficient information in order to more clearly understand the costs and consequences of a collateral charge mortgage relative to a conventional mortgage. 

General Information

When banks offer residential mortgages, they will provide consumers with comparative information that will help them understand the differences between the types of security taken by a bank for collateral charge mortgages and conventional mortgages.

This comparative information will cover transferring or assigning a mortgage security to a new lender, borrowing additional funds and discharging the mortgage security.

Banks also commit to providing both the general and specific information below in a manner that is clear, simple and not misleading.

The banks will implement the voluntary commitment related to disclosure of general information as follows:

  • on their websites by September 1, 2014;
  • available in branches/at points of service and on request by November 30, 2014.

Specific Information

More specific information about these same topics would be provided by a bank on the bank’s own specific mortgage loan to a customer at the time of or before entering into a mortgage loan, for mortgages entered into by January 31, 2015.