TD eats mortgage discharge fee for client

When Shawn and Heather Aberle needed extra financing on their house in Mississauga, Ont., they took out a $612,500 mortgage and line of credit with TD Canada Trust.

They didn’t realize that TD had registered a collateral mortgage of $946,000 against the property.

“Collateral mortgages provide our customers with flexibility when they need access to affordable credit,” says a TD spokeswoman, Alicia Johnston, “and may allow customers to avoid additional registration costs when increasing or refinancing a mortgage or with future borrowing.”

Shawn, 50, later had a heart attack and stopped working. The couple’s income was reduced substantially. As a result, they were turned down last October when seeking another $50,000 to pay off high-interest debts. “We asked TD to remove the $946,000 lien, but were told to hire a lawyer. We found it unfair the problem was back on us and it wasn’t the bank’s problem to lower the lien amount,” he says.

A collateral mortgage is different from the standard mortgage that most Canadians understand. Normally, if you buy a house for $500,000 and take out a mortgage for $400,000, the lender registers a $400,000 charge or lien against your property.

With a collateral mortgage, the lender registers a higher charge than the actual amount you borrow. It may be 100 per cent of the property value — up to 125 or 150 per cent.

This makes it easier to get access to more money in future without paying to discharge the existing mortgage and register a new one at a

“We asked TD to remove the $946,000 lien, but were told to hire a lawyer. We found it unfair the problem was back on us.” SHAWN ABERLE MISSISSAUGA HOMEOWNER

higher amount.

But — and it’s a big but — you must have enough income to qualify for the refinancing you seek. If the lender decides you aren’t eligible, the fact that you have a higher lien registered against your house is irrelevant.

Who pays the legal and appraisal fees to lower the lien when your lender won’t refinance? That’s a key question.

Shawn wrote to me last February after I did a column on collateral mortgages. He’d been asking TD to pick up the legal and appraisal costs to discharge the $946,000 mortgage since last October.

Meanwhile, he’d been approved for financing with another lender that deals with higher-risk borrowers and charges higher interest rates. But nothing could go ahead until there was an agreement to lower the lien amount.

“Your name gets things popping,” Shawn said after I contacted TD. The bank agreed to pick up the costs, but the higher charge is still registered against the property for now.

Johnston explained: “It takes 30 days to discharge a lien and we are doing what we can to help accelerate this.”

TD has sold collateral mortgages only since 2010. Tangerine Bank made the move to collateral mortgages in 2011. Neither bank offers standard mortgages to new customers.

Canada’s major banks agreed to give customers more information on the different types of mortgage security — specifically, collateral charges — starting last Sept. 1 and ending by Jan. 31 of this year. Federal Finance Minister Joe Oliver announced the voluntary commitments last fall.

What about TD, which offers no options but collateral mortgages? Is the information clear to potential borrowers?

I hope to see big, bold-print disclosure by the banks that they can register a charge against your house that exceeds the amount you borrow. Also, a collateral charge can put you into a bind if you want to switch lenders — especially if the lender requires you to repay any extra funds that have been secured by the mortgage, such as car loans.

Ellen Roseman writes about personal finance and consumer issues. You can reach her at eroseman@thestar.ca or ellenroseman.com.