Every year, new “discount mortgage websites” pop up promising the lowest rates ever!!
It sounds great… until you learn what you gave up to get that low rate.
A lot of these “no frills” mortgages look cheap upfront but can cost you way more later because of the rules buried in the fine print. And let’s be honest — nobody reads the fine print until it’s too late.
So here’s the simple version of what you actually need to look for before signing anything.
1. Conversion Rates (If You Switch from Variable to Fixed)
If you have a variable-rate mortgage, you can “lock in” to a fixed rate later.
But the question is: What fixed rate will they give you?
Some lenders give you:
- Their best available fixed rate.
Others give you:
- A tiny discount off their posted rate (which is way higher than real rates).
That difference can mean hundreds more per month.
Example:
One lender might offer 3.74%.
Another might lock you in at 4.34%.
On a $300,000 mortgage, that’s about $300 extra per month… all because of the small print.
2. Prepayment Penalties (The Big One You Must Know)
If you ever need to break your mortgage early — and 1 out of 3 people do — the penalty can be HUGE depending on your lender.
There are fair ways to calculate penalties… and then there are the gotcha methods some big banks use.
Simple breakdown:
Fair lenders:
Compare:
- Your actual rate
- Today’s rate for the time you have left
→ Penalty stays reasonable.
Less fair lenders:
Use:
- Their old posted rate (much higher)
-
A weird discounted version of today’s rate→ Penalty becomes thousands more.
3. How Your Interest Is Compounded
This sounds boring, but it matters.
Fixed rates:
- Usually compounded semi-annually (standard).
Variable rates:
- Can be monthly or semi-annual.
If your lender compounds monthly, your interest quietly grows a bit faster — around 0.05% more per year.
4. Collateral Charges (The Handcuffs)
Some lenders register your mortgage as a collateral charge.
Translation:
- It’s expensive to switch lenders later (usually $1,000–$1,200).
- They know you won’t want to pay that.
- So they offer weaker renewal rates because they know you’re “stuck.”
If your mortgage is a standard charge, switching is usually free.
Always ask this question.
5. Portability (Taking Your Mortgage With You)
If you move, can you “take” your mortgage with you?
If yes:
- You can keep your good rate.
- You avoid penalties.
- You avoid today’s possibly higher rates.
If no:
- You’re breaking the mortgage → hello penalty.
This one feature can save you thousands.
6. Assumability (Letting the Buyer Take Over Your Mortgage)
Some mortgages let you pass your mortgage on to the person buying your house.
If your current rate is lower than today’s rates, this can help sell your home faster.
Downside:
-
You stay on the hook if the new owner doesn’t pay. But in some cases, it’s a great option.
7. Prepayment Privileges (How Much Extra Can You Pay?)
Not all lenders let you make extra payments the same way.
Some let you:
- Pay up to 25% extra anytime during the year.
Others:
- Only let you pay 10%
- And only on the anniversary date
If you want to pay your mortgage off faster, these rules matter more than you think.
The Real Lesson: Rate Isn’t Everything
Always ask your mortgage advisor (that’s us) about:
- Penalties
- Portability
- Compounding
- Prepayments
- Collateral charges
- Conversion rates
And if anyone ever dodges your questions or says “trust me,” run.