Collateral vs Conventional Mortgages: Key Differences

When you get a mortgage, it's registered against your property in one of two ways: collateral or conventional. This choice affects your flexibility later, and most borrowers don't know the difference until it's too late—understanding it now can save you thousands.

What Is a Conventional Mortgage?

A conventional (or standard charge) mortgage is registered for the exact amount you borrow.

Example:

• Purchase price: $500,000
• Mortgage amount: $400,000
• Registered charge: $400,000

Characteristics:

• Registration matches what you owe
• Easy to transfer to another lender at renewal
• Lower switching costs
• Clear liability amount

What Is a Collateral Mortgage?

A collateral mortgage is registered for more than you borrow—often up to 125% of your property's value.

Example:

• Purchase price: $500,000
• Mortgage amount: $400,000
• Registered charge: $625,000 (125% of value)

Characteristics:

• Registration exceeds actual debt
• Harder to transfer—often requires full refinance
• May access more credit later without re-registering
• Higher switching costs

Which Lenders Use Which?

Collateral mortgages (typical):

• TD Bank
• Tangerine
• National Bank
• Some credit unions

Conventional mortgages (typical):

• Most monoline lenders
• CIBC
• RBC
• BMO
• Scotiabank

Ask your lender or broker which type they're offering.

The Switching Problem

At renewal, if you want to switch lenders:

Conventional mortgage:
Simple assignment or switch—minimal legal fees ($0-500).

Collateral mortgage:
Full discharge and new registration required—legal fees of $1,000-2,000+.

This cost difference can eat into savings from a better rate.

Advantages of Collateral Mortgages

Potential to reborrow easily:
If your property value increases, you may be able to borrow more without legal costs (if your lender offers this).

Combined credit products:
Some lenders combine HELOC and mortgage under one collateral registration.

Flexibility with same lender:
Adding products later is simpler.

Disadvantages of Collateral Mortgages

Switching costs:
Higher legal fees discourage shopping around at renewal.

Second mortgage complications:
The inflated registration makes getting a second mortgage from another lender harder.

Reduced flexibility:
You're more "locked in" to your current lender.

Priority issues:
The collateral charge takes priority over other debts secured against your property.

When Collateral Makes Sense

• You plan to stay with this lender long-term
• You want combined mortgage + HELOC products
• You value flexibility to reborrow over switching flexibility
• You're unlikely to need a second mortgage

When Conventional Is Better

• You want maximum flexibility at renewal
• You may refinance or switch lenders
• You want to keep switching costs low
• You might need a second mortgage later

Can You Convert Between Types?

Collateral to conventional:
Requires full refinance with new registration—costly.

Conventional to collateral:
Also requires new registration—also costly.

Choosing correctly from the start is much better than converting later.

Real-World Impact Example

Scenario: 5 years after purchase, you want to switch lenders for a better rate.

Conventional mortgage:

• Assignment/switch costs: $500
• Savings from better rate: $5,000 over term
• Net benefit: $4,500

Collateral mortgage:

• Discharge + new registration: $2,000
• Savings from better rate: $5,000 over term
• Net benefit: $3,000

The collateral mortgage cost you $1,500 in switching flexibility.

FAQ

Q: Why do some lenders prefer collateral mortgages?
A: It keeps borrowers "stickier"—switching costs discourage moving to competitors at renewal.

Q: Can I negotiate for conventional instead of collateral?
A: Usually no. Lenders have one system. You can choose a different lender if registration type matters to you.

Q: Does registration type affect my interest rate?
A: No. Rate is determined by other factors. Registration type affects flexibility, not rate.

Q: What if I just stay with my lender forever?
A: Then collateral disadvantages don't affect you. But most people don't stay with one lender for 25+ years.

Q: Does this affect how much I can borrow?
A: No. Your qualification is based on income and credit, not registration type.

What's Next

Mortgage registration type is one of many fine-print details that matter. Before signing, make sure you also understand prepayment penalties and lender comparison factors.