Mortgage with Collateral Guarantee: Buying Without a Down Payment

Is the idea of a massive down payment holding you back from your real estate project? Good news: a collateral charge could be the key. This solution allows you to turn the value of your current property into a financial lever for purchasing a new one. Discover how this strategy works and make an informed decision to bring your acquisition project to life.

How does a collateral charge work?

Do you want to acquire a new property but do not have the initial down payment usually required by financial institutions? When a buyer takes out a standard mortgage loan, they generally must provide a down payment as a percentage of the purchase price. In 2026, for properties purchased between $500,000 and $1.5M, the down payment calculation is tiered: it is 5% on the first $500,000 and 10% on the remaining amount. Any property priced at $1.5 million or more requires a 20% down payment.
A collateral charge is one of the solutions suited to your project. It can effectively replace the traditional down payment:

• Instead of providing a cash down payment, you use the net value of a property you already own. The equity in your property will be used as security to obtain your new mortgage,
• no cash transfer takes place between your properties: your existing property acts as collateral to secure the financing of your new purchase,
• with a collateral charge, you may even finance a larger portion of the purchase price of your new property. In some cases, this solution can allow you to finance up to 100% of your new home’s price.

Properties used as collateral charge security

Different types of real estate

Several types of properties can be used as collateral charge security, including:

• land,
• houses,
• rental/income properties,
• cottages.

Who owns these properties?

Several situations may apply regarding ownership:

• the property may belong directly to you,
• it may also belong to close family members, such as your parents, siblings. In this case, the property owners must sign the necessary documents to formalize the security. This situation may occur when parents wish to help their child purchase a property without becoming co-borrowers, co-buyers, or co-owners.

What happens if the property already has a mortgage?

A collateral charge can apply to a property that is already financed with an existing mortgage or to a fully paid-off property.
For residential financing, if the property used as collateral security already has a mortgage, the new financing must obligatorily be taken with the same lender.

How much can I borrow with collateral charge?

To determine the amount you can use under a collateral charge, an important rule to remember is the 80% rule. The maximum financing generally equals 80% of the value of the properties pledged as security, including the new property you wish to purchase.
Let’s take an example:

• You own a house valued at $500,000, with $250,000 remaining on your mortgage,
• your available equity is calculated as follows: ($500,000 × 80%) – $250,000 = $150,000. These $150,000 can then be used as collateral security,
• if the new property you are targeting costs $600,000, it may be financed at 100%, because the total financing ($250,000 + $600,000 = $850,000) does not exceed 80% of the combined value of both properties: $500,000 + $600,000 = $1,100,000, of which 80% equals $880,000.

A 100% mortgage can therefore be granted on the new property.
Although this example involves a $600,000 purchase, collateral charging is a crucial strategy for real estate projects priced at or above $1.5 million. At this price level, regulations state that mortgage insurance such as CMHC is not available. Without insurance coverage, the buyer is legally required to provide a minimum 20% down payment. Collateral charging then becomes an essential means of meeting these regulatory requirements.

Comparison: conventional mortgage vs. collateral charge mortgage

Understanding the differences between a standard mortgage and a collateral charge mortgage helps you make a choice suited to your situation. Here are some characteristics of each option:

Do you want to transfer your mortgage?

• A conventional mortgage offers greater flexibility upon renewal, typically every five years. You can easily switch lenders at a lower cost.
• With a collateral charge mortgage, you generally cannot transfer your contract to another lender. However, an exception may apply: if your loan balance is below 80% of the property’s value, it may be possible to transfer the mortgage and release the property used as collateral. Notary discharge fees must also be paid, as they are mandatory for collateral charges.

Cost differences

• A conventional mortgage offers greater flexibility in switching lenders. The costs associated with changing lenders are generally lower.
• For a collateral charge mortgage, there is less flexibility: additional fees should be expected.

Why choose a collateral charge?

Several advantages come with a collateral charge mortgage:

• ability to reinvest in real estate without providing an initial down payment: this opens opportunities for buyers who already own property with equity but lack the liquid funds for a new purchase,
• no interest paid on the property used as collateral, since no funds are transferred between properties. If the secured property already has a mortgage, mortgage payments on that property must still be maintained.
• avoid mortgage insurance such as CMHC: this can potentially reduce borrowing costs. CMHC insurance does not cover properties valued at $1.5 million or more. In this context, collateral charging becomes almost essential for buyers with insufficient liquidity, as it helps cover the required 20% equity where insurance can no longer apply,
• easier access to a mortgage: if you own a property, you can use it as security to facilitate obtaining a new mortgage,
• greater flexibility with the possibility of negotiating better terms, such as a lower interest rate or more flexible repayment conditions,
• strengthening your financial profile: by offering an asset as security, you present yourself as a serious borrower to lenders and may improve your credit profile due to your demonstrated ability to secure your financial commitment.

Collateral charge: impact on your assets

Before opting for a collateral charge, it is essential to understand its implications:

• When a financial institution grants a collateral charge, it registers a mortgage security against one of your properties. This mechanism allows financing of the down payment required for another property purchase. In return, the new property will be mortgaged at 100%, just like a standard mortgage,
• a collateral charge has the same legal value as a traditional mortgage. If you sell one of the properties involved, you must repay or fully release the collateral charge before completing the transaction.

Good to know: not all financial institutions offer collateral charge options. Personalized support from a mortgage broker can help you assess your options and navigate the sometimes complex world of mortgage financing.