Be aware of Mortgage Rates—You get what you pay for. 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. This type of product will only seem ideal for you if you have no plans to take advantage of benefits that will help you pay off your mortgage faster – such as pre-payment privileges including lump-sum payments. These products are also restrictive if you need to make changes within the term you choose.
Essentially, these products can be 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 a low fixed rate and are not concerned with making lump-sum payments.
No-Frills products also won’t let you take your mortgage with you if you purchase another 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.
It’s understanding 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? 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.
There are, however, other ways in which to earn your own discounts. For instance, by switching to bi-weekly accelerated mortgage payments 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.