Over the last 4 years, we have seen the slow introduction of ‘no-frills’ or ‘low-rate’ mortgage products in Canada. These products have recently made their way to Ontario, and are being offered by both reputable mortgage Lenders and major Banks. Most Canadians are not aware that they have one of these products, and do not understand how costly and restrictive they can be.
In simple terms, a ‘no-frills’ mortgage is where a bank or lender offers a reduced rate on a particular mortgage in exchange for flexibility. Ok, so what does that mean? Most no-frills mortgage products reduce the amount of money you are allowed to put down on your mortgage as a lump sum, if they allow any lump sum at all. Additionally they eliminate or reduce your ability to increase your payments. Not the biggest deal for some Canadians, but of course there are even more restrictions…
Some ‘no-frills’ or ‘low-rate’ mortgage products charge you a higher penalty if you break your mortgage contract before the end of your term. Some won’t even allow you to pay off your mortgage unless you sell your house, and then pay a hefty penalty (we’re talking potentially tens of thousands of dollars).
With the majority of Canadians making changes to their mortgage before the end of year 4, these no-frills mortgage products will cost Canadians tons of money, and help increase the financial institutions profits.
If you are being offered a ‘no-frills’ or ‘low-rate’ mortgage from your Bank or mortgage lender, you need an impartial mortgage professional to explain, in detail, what you are really getting yourself into, and whether the savings on the rate truly out-weigh the risk.