If you’ve done your mortgage homework, you should know how important lump sum payments can be in reducing your overall interest and allowing you to pay off your mortgage faster. But sometimes the benefits of lump sum payment options can result in higher fixed term interest rates.
When you take away all of the bells and whistles from a normal fixed rate mortgage product (i.e. prepayment options, payment holidays, etc.) then what you end up with is a no-frills mortgage.
When you do your mortgage shopping you’re bound to come across some of these products. They’ll be the featured rates that seem far too low to be true. If you know you’re not going to take advantage of these features, don’t pay more for them.
When you’re comparing products it’s essential to know the advantages and disadvantages that are offered so that you can make an informed decision.
There's really only one advantage to a no frills mortgage which is lower rates.
Be aware of what you’re giving up for a lower mortgage rate. These products typically come with:
(This list is not exhaustive and there may be even more drawbacks to a no-frills mortgage product, so be sure to check the fine print)
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 a headache.
In the current market you can still get very low mortgage rates on full-feature mortgage products – you can benefit from low rates and keep all of your options open at the same time.