There’s been a trend in lenders trading deep mortgage discounts for piles of restrictions. “No frills mortgages” are case in point.

Lenders simultaneously giveth and taketh like this because flexibility costs them money. Mortgages with big pre-payment allowances, for example, are more expensive to fund.

BC credit union, Coast Capital Savings, has found a way to make flexibility work while still offering one of the lowest rates in the market. The result is the “You’re the Boss” mortgage.

Coast’s “You’re the Boss” mortgage comes packed with features. You get:

• One of the lowest 5-year fixed or 5-year variable rates in Canada
• An optional hybrid rate (i.e., half fixed & half variable)
• A “Save and Take” feature that lets you re-borrow pre-payments if you ever need to (thus encouraging pre-payments by making them liquid)
• A skip a payment option (once a year)
• A double-up payment option to pay down your mortgage quicker

You also get the freedom to pre-pay up to 30% of your mortgage each year. That’s the most lump-sum prepayment flexibility in the country on a closed mortgage.

In theory, this means you can pay off your mortgage without penalty in less than three years. Mind you, few people will actually pre-pay 30% annually.

Large pre-payment options are most handy if you get a big chunk of cash and have no better use for it. They also help if you want to reduce your penalty before refinancing (by making a pre-payment).

Most importantly, a 30% pre-payment allowance sets the bar higher for the industry. It’s even more impressive when you consider that some major banks still allow lump-sum pre-payments of only 10% a year.

Lawrie Ferguson, Coast Capital’s marketing chief, says “The response to this product has been phenomenal.”

“We exceeded our year-end targets by 250% and our volume targets by 500%. It tells us that Canadians were hungry for a mortgage that offers the great rates, flexibility and control that the You’re the Boss product provides.”

Ferguson says the product’s low rates are not a short-term promotion either.

“We aim to be a market rate leader no matter what the product,” she says. “The really unique aspect of the You’re the Boss rate is our innovative Half & Half Rate which brings the best of a variable rate together with the security and predictability of a fixed rate. When combined with our Haggle-free guarantee which offers our customers our best rate without having to negotiate, it is a very competitive offering.”

In most ways, the Half & Half feature resembles a run-of-the-mill hybrid rate. The difference is that Coast Capital rounds the rate down, which helps a little bit. (e.g., Whereas a 3.65% fixed rate + 2.20% variable rate / 2 = 2.925%, Coast gives you 2.90%.)

All in all, the “You’re the Boss” mortgage (available only in BC) is a feature-packed product at an exceptional price.

For Coast Capital throwing in the kitchen sink on a deeply discounted mortgage, we name it Canadian Mortgage Trends’ Mortgage of the Year.

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Honourable Mentions

• BMO Low Rate Mortgage … BMO’s Low Rate Mortgage was a game changer in 2010 because it publicly undercut the other big banks and single-handedly forced competitors to discount more aggressively. Lamentably, it was saddled with too many limits including restrictions on refinancing, pre-payments and maximum amortization.
• CIBC Cash-Back Switch … CIBC’s switch promotion turned heads with an incredibly-low effective rate, especially on $400,000+ mortgages—which included 3% cash back. Its Achilles heel was an onerous 100% clawback policy on the cash back for early termination.
• RBC RateCapper … RBC reprised its RateCapper in 2010 and with rates on the rise, it was perfect timing. RateCapper gave people a unique option: a variable-rate mortgage with rate protection. The concept was great. Unfortunately, RBC set the cap (rate maximum) too high, which made the product mathematically unappealing.

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Past CMT Mortgage of the Year Recipients

• 2009:  TDFS Specialty Mortgage
• 2008:  National Bank All-in-One
• 2007:  MCAP FlexStar