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 benefit.
This type of product may seem ideal for you, but only if you have no plans to take advantage of other benefits which will help you pay off your mortgage faster – such as pre-payment privileges including lump-sum payments.
Essentially, this product is ideal for first-time homebuyers who want fixed payments and have limited opportunities to make lump-sum payments during the first five years of their mortgage; and property investors who need the lowest fixed rate and are not concerned with making lump-sum payments.
Typically, No-Frills products also won’t let you take your mortgage with you. This means that if you purchase another property before your mortgage term is up portability is not available with this product. Portability is an important option that can save you money over the long term if the home of your dreams is available to purchase before your mortgage term is up and rates have risen. They have a tendency to do this over a five-year period.
It is understandable why these products may seem appealing. After all, during tougher economic times, who has the extra cash to put down a huge lump-sum payment?
And who needs a portable mortgage if they’re not planning on moving until the market picks up? However, it’s important to remember that a lot can change over the course of five years – or whatever term you choose for your mortgage.
Yet, 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 and reduce the amount of interest you pay. 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 current five-year fixed rate, you’ll be ahead of the typical 0.1% discount of a No-Frills product within approximately three years.
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.
Cameron Wood is a mortgage associate with Dominion Lending Centres Key Financial. Visit his web page for more articles and sign up for his informative newsletter and personal service http://www.cameronwood.ca .