I received this email from Daryl Colin thru Facebook yesterday, and think it is valuable information for anyone considering a new mortgage.

Daryl Colin November 25 at 5:35pm

You may be attracted to a mortgage rate that’s 10 bps or more below the market, but that rate may signal a no-frills product that comes with significant limitations on what you can do within the contract terms.

No-frills mortgages are stripped-down to eliminate features that add costs. Typically, no-frills products are designed to appeal to purchasers who are highly cost-sensitive, such as those who might not qualify at higher rates, and first-time buyers with limited opportunities to make prepayments. No frills products are also suited to purchasers who want a re-advanceable mortgage with a low-rate fixed portion that they don’t plan to pre-pay, and for investors, for whom interest costs are deductible.

You generally give up the following:

• No frills is fully closed

This usually means you are committed to the full term of the mortgage. Restrictions to an early payout may be more than a traditional mortgage or have certain requirements that need to be met prior to doing so. Lenders may vary on their definition of fully closed so it’s important that the fine print is explained.

• Prepayment privileges are restricted

Most lenders offer at 10-20% annual prepayment privilege against your mortgage going directly against principle . A no frills product may not have this or offer a significantly reduced amount or in some cases have it eliminated.

• No top-up options

This means there may be restrictions if you decide to refinance or want to borrower more.. Additional penalties or fees may be charged.

• Quick closings/No pre-approvals and longer-than-average approval times

Your mortgage must close in a certain time period in order to qualify for the no frills (low rate) mortgage. In some cases you may not be able to have rate guarantee longer than 30 days.. It’s important to make sure you know the rate hold policy.

• Limited choice of lender from which you can transfer without legal fees

In today’s competitive market most lenders will absorb the legal fees to transfer a mortgage to their institution on the renewal date. Since no frill mortgages are set up with terms and conditions that are unique to the norm it may require additional legal work for the new lender to facilitate the transfer.

The bottom line: Mortgages differ from lender to lender so it’s important that you sit down with an accredited mortgage professional to understand all your options.