WHAT IS A COLLATERAL MORTGAGE?
- johnathanmcquoid
- Jan 17
- 2 min read
A collateral mortgage is a specific way a lender registers your mortgage on title — and it works very differently from a standard (conventional) charge.
Some banks and credit unions use collateral registration by default, while most monoline lenders do not.
Understanding the difference can save you money, flexibility, and frustration later.
Here’s what you need to know 👇
🏡 What is a collateral mortgage?
A collateral charge allows the lender to register the mortgage for more than the amount you actually borrow — sometimes up to the full value of your home.
This can allow you to:
✔️ access equity later
✔️ increase your mortgage
✔️ set up a HELOC or re-advanceable mortgage
All without re-registering the mortgage (which can cost up to $1,000+ in legal fees).
Great in some situations — but not always.
⚠️ But here are the downsides…
Collateral mortgages come with restrictions most homeowners don’t realize until it’s too late.
Here are the major issues 👇
❌ 1️⃣ Your other debts with that lender can be tied to your home
Because a collateral mortgage is an all-indebtedness charge, it can include:
✔️ credit cards
✔️ personal loans
✔️ car loans
✔️ lines of credit
Even if your mortgage payments are perfect, the lender can secure all of your debt under the same charge.
❌ 2️⃣ It’s harder to switch lenders at renewal
Many lenders will not accept a collateral mortgage for a simple transfer.
This means you must:
• discharge the mortgage
• pay legal fees
• register a brand-new mortgage elsewhere
This can easily cost hundreds to over a thousand dollars — which keeps many borrowers “trapped” with their current lender.
❌ 3️⃣ It limits second mortgage or HELOC options with other lenders
Because collateral charges are often registered for 100% of the property value, there’s no room left for:
✔️ second mortgages
✔️ HELOCs from another institution
✔️ additional secured financing
You’re basically locked in with one lender.
🔍 Summary — pros vs cons
Pros:
✔️ easier future increases
✔️ access to equity without re-registering
✔️ may allow re-advanceable mortgage options
Cons:
❌ ties in all debt with that lender
❌ costs more to switch lenders
❌ limits options for secondary financing
❌ reduces flexibility
💬 Need help determining if you have one — or if you should avoid one? Send The Frontline Mortgage Group a message. We’ll review your current mortgage setup and make sure you understand your options before making any changes.