“The ability to make lump sum [mortgage] payments is much less critical to the consumer – especially in today’s economy.”
That’s the conclusion of Prospera, a prominent BC credit union.
Prospera commissioned a survey of 603 BC adults in April. The poll was conducted on Prospera’s behalf by Ipsos Reid.
Among other things, it found:
- 60% of respondents under 45 years old said they’d be willing to forgo some mortgage payment flexibility in exchange for a lower interest rate.
- 59% were unaware that mortgage rates are typically higher when large lump-sum pre-payment privileges are offered.
- Mortgage payments comprise about 25% of the average Canadian family’s monthly expenses.
These figures seem believable enough. From the inquiries we get, most borrowers seem less and less concerned about big pre-payment privileges, despite their potential value.
On the other hand, people do seem to want at least some level of pre-payment ability (5-10% for example). Very few tell us they don’t care about pre-payments “at all.”
(Then there are those who absolutely must have a 15-20% lump sum pre-payment option.)
Not coincidentally, in conjunction with releasing these survey results, Prospera launched a brand new no-frills mortgage. It’s geared to people who “know they will not take advantage of pre-payment privileges and would rather have a lower interest rate.” Prospera calls it the myStyle Mortgage and it’s currently priced at 3.59% for a 5-year fixed.
The myStyle Mortgage is just the latest in a series of no-frills launches over the past year. It’s been said before and we’ll repeat it. No-frills mortgages are a growing trend and lenders who don’t offer them will give up a lot of revenue over time.
Looking back, I wish I would have gone with less prepayments. I thought I was going to use them more but I didn’t. A cheaper rate would have saved a lot of money. Oh well. What good is hindsight I guess.
You failed to mention the 12 month interest penalty for early repayment. Also, is this mortgage portable or assumable? I doubt it. Rather than regurgitating the press releases – let’s have the whole story.
Or MCAP’s no frills mortgages that are truly closed except for bona-fide sale.
These lenders should be forced by regulatory bodies to have full disclosure in their advertising for these sneaky terms that are outside of industry norms.
The Broker,
Thank you for noting the 12-month penalty. It is one of many key terms that customers should be aware of. It is also an example of why we ask readers to always consult a mortgage professional.
In reference to your regurgitation comment, please note that the story above was not intended to be a product review. The story was primarily a summary of Prospera’s survey.
In many case, articles on this site must necessarily be brief. In such instances, the goal is simply to highlight announcements. Exhaustive analysis is not always possible with every story.
On a separate note, I totally agree on your last point. Any material information pertaining to penalties, rate holds, and pre-payment restrictions should be disclosed by lenders up front. Naturally, they often bury these terms in the fine print for marketing reasons.
-rob
P.S. Prospera’s no frills product is, in fact, portable and assumable.