Information About Mortgage Security

What is a mortgage? 

A mortgage (or charge, depending on the province) is granted by a borrower in favour of a lender to secure repayment of a loan. If the borrower fails to pay back the debt, the mortgage gives the lender the right to take possession or to sell the property. The mortgage must be registered (or published in Quebec) against the property at the appropriate registry. Each province has its own mortgage and registration rules.

What is a Discharge?

A mortgage discharge (also known as a “release” or an “acquittance” in Quebec) is the removal of a mortgage from the registry in which it was listed. Once the mortgage has been discharged, the lender loses any rights it had against the property under the mortgage.

The borrower must typically pay the administrative fees for preparing and/or registering the discharge of the mortgage.

There are two types of mortgages: the collateral mortgage and conventional charge mortgage.

1)      Collateral charge mortgage

Registered Charge Amount

The registered mortgage amount and the interest rate can be higher than the initial financed amount in order to guarantee other debts in the future.

For example, if you apply for a $320,000 mortgage loan to buy a house worth $400,000, the registered mortgage amount could be $400,000.

The lender and borrower enter into a credit agreement separate from the mortgage in order to arrange the credit terms. As a result, the actual interest rate applied to the loan, the loan amount and the credit terms are set out in various credit agreements between the borrower and the lender.

Securing Debt and Possibility of Additional Funds 

A collateral charge mortgage can be used to secure the borrower’s existing and future debts. This mortgage allows the borrower to get additional funds up to the registered mortgage amount without granting a new mortgage every time. Since a new mortgage is unnecessary, the borrower does not have to pay any additional legal fees.  However, additional funds are not automatically granted, and the borrower may have to re-qualify based on applicable credit standards and get approval from the lender. 

The request for additional funds could be denied if the borrower’s financial situation has changed, for example due to the loss of a job. The request may also be denied if the value of the property is insufficient to secure the additional funds.

Possibility of Transferring a Mortgage to Another Lender (Subrogation in Quebec)

Collateral charge mortgages are not typically transferable. If the new lender agrees to the transfer, the borrower may have to pay fees. In the cases where the new lender refuses to allow the transfer, the borrower will have to get a new mortgage and will therefore need to pay the fees associated with the new mortgage preparation and registration^[1].  

Generally, all debts secured by the initial mortgage (principal, interest and fees) must be repaid to the initial lender. Fees apply to discharge the initial mortgage. If the borrower repays his mortgage loan before the end of the term, he will have to pay the applicable prepayment charge.

Discharging the Mortgage (also known as a “Release” or “Acquittance” in Quebec)

In the case of a collateral charge mortgage, the borrower can obtain a mortgage discharge once he has informed the lender and repaid all of the debts secured by the mortgage in full.

2)    Conventional charge mortgage

This type of mortgage is also sometimes called a “traditional” or “standard mortgage” by some lenders.

Registered Mortgage Amount

Unlike the collateral charge mortgage, this type of mortgage is registered by specifying the main credit terms. The registered mortgage amount is generally the financed amount.

For example, if you apply for a $320,000 mortgage loan to buy a house worth $400,000, the registered mortgage amount would be $320,000.

Securing Debt and Possibility of Additional Funds 

Traditionally, a conventional charge mortgage is granted to secure only the repayment of a mortgage loan.

To obtain additional funds secured by a mortgage for other uses, the borrower must first requalify for a new mortgage loan based on the applicable credit standards. The borrower must pay fees to prepare and register the new mortgage, unless a lender agrees to pay these fees.

Possibility of Transferring a Mortgage to Another Lender (Subrogation in Quebec)

If the borrower decides to switch lenders, the borrower can generally transfer the mortgage to the new lender rather than getting a new mortgage, subject to the new lender’s policy. In this case, you may have to pay fees to the previous lender. Only the balance of the mortgage loan may be transferred. It is not possible to obtain additional funds secured by the mortgage. Fees related to the transfer may be applicable.

If the mortgage is not transferred to the new lender, the borrower must get a new mortgage and will need to pay the fees associated with its preparation and registration. Fees will also apply to discharge the initial mortgage. If you repay your mortgage loan before the end of the term, you will have to pay us the applicable prepayment charge.

Discharging the Mortgage (also known as a “Release” or “Acquittance” in Quebec)

In the case of a conventional charge mortgage, the mortgage may be discharged once the mortgage loan has been repaid in full. The discharge may be carried out either at the borrower’s request or automatically, depending on the lender and the province concerned.