While No-Frills mortgage products typically offer a lower – or more discounted – interest rate when compared with many other available products, the lower rate is really their only perk.
If you have no plans to ake advantage of benefits that will help you pay off your mortgage faster – such as pre-payment privileges including lump-sum payments then this type of mortgage may seem ideal to you.
The time to consider having this type of mortgage is when you are a first-time homebuyers who want fixed payments and you have limited opportunities to make lump-sum payments during the first five years of your mortgage due to cash flow concerns ; and property investors who need a low fixed rate and are not concerned with making lump-sum payments Investors generally want to fix there term and optimize cash flow writing off the interest not paying down the mortgage as this lowers their tax write off.
If you should decide to move in the first 5 years No-Frills products also won’t let you take your mortgage with you if you purchase a property before your mortgage term is up – ie, portability is not an option with this product. Portability is an important option that could save you money over the long term if the home of your dreams is within your reach before your mortgage term is up and rates have risen, which they have a tendency to do over a five-year period.
These products do sound appealing. It is human nature that we want to shave that last 1/8th of a percent of the mortgage rate. Also not everyone feels they have the extra cash to put down a huge lump-sum payment. And who needs a portable mortgage if they’re not planning on moving any time soon? But it’s important to remember that a lot can change over the course of five years – or whatever term you choose for your mortgage.
The thing is, you can still obtain great mortgage savings without giving up the perks of traditional mortgages. For starters, many lenders are willing to offer significant discounts if you opt for a 30-day “quick” close.
There are, however, other ways in which to earn your own discounts. For instance, by switching to weekly or bi-weekly mortgage payments, and by obtaining a variable-rate mortgage but increasing your payments to match those of the going five-year fixed rate, you’ll be ahead of the typical 0.1% discount of a No-Frills product within approximately three years.
Clearly it is good to consider more than just the Rate when obtaining a mortgage. No-Frills products represent a great example of why interest rates are not the only important factor to consider when deciding whether to opt for a particular mortgage product.
Much like buying a car, you get what you pay for. If you don’t want a car with air conditioning, a stereo, a cup holder, and so on, then you can get the cheapest car going… but you’ll likely regret it later.
As always, if you have questions about finding the right mortgage to suit your specific needs, we are here to help!
You can find our Mortgage Calculators at
Mortgage Calculators Or get started with a Mortgage Application at Mortgage Application.
Speak Your Mind
You must be logged in to post a comment.