What is a Collateralized Mortgage?
A collateralized mortgage is a type of mortgage product that is “refinanceable,” which means that your lender can lend you more money as the value of your home increases without having to refinance your home loan. In this case, the lender will register your property as a security charge, often for a higher amount than the required loan amount.
Once your property is listed as a security expense, you can borrow money against your property whenever you want without having to refinance your mortgage. This is similar to a home equity line of credit (HELOC), which allows you to borrow against your home equity whenever you want, up to a certain limit.
This type of home loan essentially provides secondary collateral to the lender and is a form of lien on the property for the full amount registered, which can be up to 125% of the home’s value. A secured mortgage allows the borrower to provide more money towards the principal or reissue the already repaid principal.
How to calculate a collateralized mortgage
Depending on the lender, you can register a mortgage for up to 125% of the value of your home. Let’s take a look at how to calculate the amount of your collateral mortgage and your available equity.
Step 1: What is the registered home value?
To calculate the registered home value of your secured mortgage, you need to multiply the home value by the maximum loan value.
500,000 (home value) x 125% (maximum loan-to-value ratio) = $625,000 (maximum listed home value)
Step 2: How much equity do you have?
Let’s assume that you can borrow up to 70% of the maximum registered home value and you have $200,000 left on your mortgage. To calculate how much you can borrow, you need to follow this formula
625,000 (maximum listed home value) x 70% (maximum loan-to-value ratio) = $437,500
437,500 – $200,000 (amount owed on mortgage) = $237,500 (available equity)