Mortgage and Loan Agreements in Canada

Most people, at some point in their lives, will have to consider the possibility of taking out a loan. If you want to buy a house, a car, or property, start a business, expand a business, renovate a house or business, or buy new equipment for an established business, you will have to explore your financing options.

There are several different types of mortgage and loan agreements for both you and your lender to choose from:

• Promissory note. This is a document that you as the borrower sign promising to pay back your loan by a certain date, or whenever the lender calls it in. It is binding, but it does not place any of your assets at risk, since they are not placed as security for your loan.
  
• Realty mortgage. This is the type of loan most people get to finance a new house, business, or other property. It is registered with the Province and there can be legal ramifications if you default on it, including having your property repossessed.
  
• Chattel mortgage. This is a loan that you take out using any property that is not your house, business or land. This can include equipment, vehicles, stocks, bonds, or other valuable assets.
  
• Pledge. This is similar to a chattel mortgage, in that your assets become security, but you are allowed to keep the titles and rights to them during the course of the loan.
  
• Floating charge. This is a loan which uses any of your assets that are not already being used to guarantee another loan to guarantee the loan in question. You, the borrower, get to keep the titles, but the debt and the assets guaranteeing it are registered with the Province.
  
• Personal guarantee. With this type of agreement, you promise that if your company or business is unable to make good on the loan, you will promise to use your own personal assets to pay it off. This kind of loan should be a last resort, since your family’s financial security would be at risk if your business went bankrupt or was otherwise unable to pay its debts.
  
• Postponement of a claim. This is an option taken by the lender, rather than the borrower. It says that once you have taken out a loan, you will take current assets and profits and pay off your debt to the lender before you meet your obligation to the shareholders of your company. This protects the lender if they feel you are a high-risk loan and might not be able to repay your debts.

Different kinds of businesses handle long term loans, though some specialize more in one kind or another. You can seek loans or mortgages from banks, insurance companies, pension funds, loan specialists, or mortgage brokers.

There are also government-sponsored programs that can help you if your goal is to finance or expand a small business. You can contact the Canada Small Business Financing (CMBF) Program for information and assistance in applying for these.

Questions that this article talks about:
What are Mortgage and Loan Agreements in Canada?
What types of mortgages are available in Canada
What features do mortgages have in Canada?