Collateral
Garantie in French
Quick definition
Collateral is an asset a borrower pledges to secure a loan: the house behind a mortgage, the car behind a car loan. If the borrower defaults, the lender can seize the asset. In Canadian mortgages, how the collateral is registered (standard vs. collateral charge) has real consequences at renewal.
Secured vs. unsecured credit
Credit comes in two flavours. Secured credit is backed by collateral: mortgages, car loans, a HELOC. Unsecured credit, like credit cards and most personal loans, is backed only by your promise to pay. Collateral is why the rates differ so much: a lender who can recover a house after a default takes far less risk than one holding a promise, and the rate reflects it. A mortgage might cost 5% while a credit card charges 21%, on the same borrower, in the same month.
If things go wrong, the lender's remedy runs through the collateral: power of sale or foreclosure on a home, depending on the province, and in Québec the taking in payment (prise en paiement) procedure.
The part that matters in Canada: standard vs. collateral charge
When a Canadian mortgage is registered against your property, it is registered as one of two kinds of charge, and most borrowers are never told which. The difference surfaces years later, at renewal.
A standard charge registers the actual mortgage: you borrowed $400,000, the registration says $400,000. Its key property is portability between lenders: at mortgage renewal, a competing lender can accept a transfer (a "switch") cheaply, often covering the small fees itself. Easy exit keeps your bank honest when it quotes your renewal rate.
A collateral charge is registered for an amount that can far exceed the loan, often 100% to 125% of the property's value. Banks use it for readvanceable mortgages and HELOCs because one registration can secure current and future borrowing: you can re-borrow later with no new legal work. The catch is the exit. A collateral charge cannot be simply transferred to another lender. Leaving means discharging the charge and registering a new one, in effect a mortgage refinancing with legal and appraisal costs, typically several hundred to over a thousand dollars (as of July 2026).
That friction is not an accident: a borrower who must pay to leave negotiates renewal rates from a weaker position. Some lenders periodically cover switch costs for collateral-charge borrowers to win their business, but you cannot count on that offer existing when your renewal comes.
Ask before you sign
When arranging any mortgage, ask one direct question: "Will this be registered as a standard charge or a collateral charge?" If you want a HELOC or readvanceable product, a collateral charge is the price of admission and can be worth it. If you just want a plain mortgage, a standard charge preserves your cheap exit at renewal. Either answer can be fine; not knowing which you signed is the mistake.
In Canada
Several large Canadian banks register some or all new mortgages as collateral charges by default, including plain mortgages with no HELOC attached, and disclosure is often a line deep in the paperwork. Federal disclosure expectations have improved, but the practical burden is still on the borrower to ask.
A collateral charge registered above your current borrowing also has a side effect: because the charge already occupies that registered amount, it can complicate adding a second mortgage with another lender, since little registered room is left behind the first charge.
Worked example: two neighbours at renewal
Dana and Éric both hold $350,000 mortgages and both get a mediocre renewal offer from their bank. A competitor offers a rate 0.3 points lower, worth roughly $3,000 over a 5-year term (illustrative, as of July 2026).
Dana has a standard charge. The competitor processes her switch and absorbs the transfer costs; she signs and saves the $3,000. Éric has a collateral charge registered at 125% of his home's value from a readvanceable mortgage he never fully used. Moving means a discharge, new registration, and legal fees of about $1,200 out of pocket. He still comes out ahead by switching, but the friction is exactly what his bank counted on when it made him the mediocre offer, and many borrowers in his position simply sign the renewal.
Reviewed by Alexandre Bernier, CFP®, CIM®, PFP®·Updated July 2026