Collateral mortgage
A collateral mortgage, or collateral charge, lets a lender secure several loans against the same property, and the Financial Consumer Agency of Canada says the lender may register a charge higher than the mortgage amount. It differs from a standard charge, which secures only the mortgage.
A buyer may meet this term if a lender asks for security over land or a building, whether it is bought with the business or owned by the buyer or a guarantor. The FCAC describes the charge in consumer-mortgage terms, so ask a business lender how its own charge is written.
Standard versus collateral
The FCAC says a standard charge only secures the mortgage, while a collateral charge mortgage may secure multiple loans with the lender. The CSBFP guidelines from ISED also use the term: they say that in some jurisdictions the only way a lender can secure a mortgage from an individual is a personal guarantee secured with a collateral mortgage on the property for the same amount, documented as taken only to secure an asset of the small business.
What to check or ask
- Which loans the charge secures now, and which future debts it could secure.
- How the registered amount compares with the loan.
- How the charge is released when the loan is repaid. See discharge of security.
- How land registration and mortgage rules work in the province where the property is.
For the wider picture, read what security a lender can take.
Sources
This definition is checked against primary sources. Links were last confirmed on the dates shown.
- 01Financial Consumer Agency of CanadaGovernmentChoosing a mortgage that is right for you
- 02Innovation, Science and Economic Development CanadaGovernmentCanada Small Business Financing Program — Guidelines
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