Full Frill or No Frill

Mar 25, 2013

You’re FINALLY ready to buy a new home!  You can hardly wait, but you need to get the perfect mortgage first.  When acquiring a new mortgage make sure to always ask this question, among others of course: full frill or no frill?

 
What exactly does full frill or no frill mean?  Well, exactly how it sounds.  A no frills mortgage comes with absolutely NO frills.  At the cost of a lower rate you get no, or extremely little, flexibility, no extras, no considerations.  According to CanadianMortgageTrends.com “A No Frills mortgages are bare bones products designed for one type of person:  someone who doesn’t want to pay for added flexibility.
In terms of pricing, no frills mortgages are usually 0.10% to 0.20% cheaper than fully-featured mortgages.”
On the other hand, a full frill (or sometimes called fully-featured) mortgage is exactly the opposite.  It allows for flexibility, pre-payment privileges,  portability and assumability.
RateSupermarket.ca outlines the advantages and disadvantages:

Advantages

Here are a few reasons why you might be tempted by this type of a mortgage:

  • Lower Rates

Actually, that’s pretty much it! Other than a lower rate, no frills mortgages offer few other benefits.

Disadvantages

Be aware of what you’re giving up in for a lower mortgage rate. These products typically come with:

  • Minimal pre-payment privileges
  • Minimal payment top-up options
  • Limited number of pre-payments in a year
  • Quick close deadlines
  • Longer turnaround times on approvals

(This list in not exhaustive and there may be even more drawbacks to a no-frills mortgage product, so be sure to check the fine print)

Is a No-Frills Mortgage Right for You?

Like all things related to your mortgage, the answer to this question depends on your personal situation. If you don’t think you’ll miss the additional features, now or over the course of your mortgage term, then maybe the lower rate is enticing enough for you. On the other hand, it’s really hard to say what life might be like a few years down the road. If you get a promotion, switch jobs, or need to sell your house, the lack of flexibility associated with a no-frills product could cause you a lot of heartache.

So the big question is:  should you get a no frills mortgage?

When you think that 70% of borrowers break or re-negotiate their mortgages before maturity this is definitely something to consider!

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