A “no-frills” mortgage is the most basic mortgage which has been stripped of all non-essential benefits to keep the price as low as possible.
There are lots of ways to save money in our everyday lives, from shopping at discount grocery stores or opting for discount Motel / Hotel; but it isn’t a wise idea to try and discount your mortgage. Here’s why:
Depending on the lender, a “no-frills” mortgage may save you a few hundred dollars over a 5-year term. But its important to understand that this type of product has the potential to cost you thousands, if not tens of thousands of dollars if you end up in a position where you need to break the mortgage before it is up for renewal. The “frills” that you’re opting out of, are the very thing that may help you in the long run.
If you still think that a “no-frills” Mortgage is right for you, here somethings you may have overlooked:
- You will pay a huge penalty to break your mortgage
- You have very limited pre-payment privileges
- Needing to move? “No-frills” mortgages have lots of limitations
- Needing to refinance? There are limitations, and the penalty will be very steep
A “no-frills” mortgage is extremely restrictive and offers virtually no flexibility. Flexibility in your mortgage, is kind of like insurance – you don’t need it, until you really need it. Being able to adjust your mortgage without being subject to huge penalties if ever faced with job loss, divorce, new career in a different province, home repairs/renovations, new home for new family members and so on.
So, if there are so many downsides, then why would a bank offer a “no-frills” mortgage? A bank’s job if to make as much money from you as possible. On average, 2/3 people break mortgages at about 36 months for countless reasons – imagine how much money the banks are making off penalties! That is why banks promote and love “no-frills” mortgage products.
When opting to work with a Mortgage Agent, we work with you to explore a variety of mortgage products from various banks and financial institutions. This ensures you’re getting what’s best for you, instead of what is going to make someone more money. There is so much more to a mortgage than the rate and its extremely important to keep this in mind.
If you have any questions or are needing some help with your own mortgage, feel free to reach out, I would be happy to help.