Taking a similar move to TD Canada trust, ING Direct will now require that all their new mortgages be placed with a collateral charge.
The collateral charge mortgage has made a lot of news lately in terms of how it will impact borrowers and borrower movement from one mortgage lender to another.
If you’re not completely up to speed on the topic, lets walk through a simple example.
If you have a $300,000 property and accept mortgage financing for $150,000, the mortgage lender will register a collateral mortgage for the full property value or $300,000.
From the lender’s point of view, the borrower can now refinance and/or take on secondary mortgage products from the lender without incurring any legal costs.
From the borrower’s point of view, the collateral charge pretty much eliminates the ability to get second mortgage financing or home equity lines of credit from any other lender than your first mortgage provider.
For a more in depth discussion on the topic, here’s a link to a recent article on the ING collateral mortgage move …. http://www.canadianmortgagetrends.com/canadian_mortgage_trends/2011/12/ing-direct-goes-collateral.html
ING appears to be banking on the fact that is going to be better for the majority of its customers and that’s why its making the move. One can also argue that it may further increase borrower retention as well as provide a spring board or ING’s much anticipated HELOC program launch which would work well with a collateral mortgage for existing clients.
In the article linked to above, there is also the debate as to how the competitive landscape will now change among mortgage lenders.
With a collateral mortgage, once a term is up, it will be interesting to see how the competitive offerings change with respect to paying switchover fees to grab customers. Right now, there aren’t many lenders that offer it, but that could change in the near future as well.
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