The Long-term Implications of a ‘No-Frills’ Mortgage

May 27, 2009  
Filed under Mortgage Broker, Mortgage Options, Mortgage Rates

In the long run, ‘no frills’ mortgage products might not be as convenient as they seem to be right now. At the moment, mortgage brokers are proffering products that offer people a lower rate at the cost of benefits associated with lump sum payments, portability and assumability.

However, it is important to consider why these products seem attractive to people right now. The state of the economy has people re-thinking portable mortgages (since they will likely be staying put until the economy improves) and cringing at the thought of laying down large lump sum payments.

The truth is though you do not have to forego the benefits offered by traditional mortgages just because you are looking to save. For example, if you opt for a 30-day close many lenders are prepared to offer considerable discounts.

Also, if you switch to bi-weekly or weekly payments, get a variable rate mortgage, and increase your payments to match those of the going five-year fixed rate; within three years you’ll be in better shape than the person that opted for the 0.1% discount of a ‘no frills’ mortgage product.

As you can see, the short term benefits of a ‘no-frills’ product do not outweigh the long term implications of taking a mortgage that may not be truly right for you.

These ‘no frills’ products illustrate why you should consider more than just interest rates when deciding whether or not to take a mortgage. In fact, taking a mortgage can be likened to buying a car…in the end you get what you paid for. You may think a car without air conditioning, cupholders and airbags is fine right now, but are you sure you’ll feel the same way tomorrow?

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