Products and terms
No-frills mortgage
A lower-rate product with less flexibility, often including a bona-fide-sale clause that means the only early exit is selling the house.
Also called restricted mortgage.
Some of the most competitive rates on any rate board belong to restricted products. The rate is lower because the lender has taken flexibility away, and what it removed is what you need to check.
Common restrictions: a bona-fide-sale clause, meaning you can only discharge the mortgage early through an arm's-length sale of the property; no portability; small or no prepayment privileges; and a requirement to refinance only with the same lender.
The bona-fide-sale clause is the serious one. With a normal mortgage you can always pay a penalty and leave. With this clause there's no penalty you can pay, so you're in until maturity or until you sell.
If you'll hold the mortgage to maturity and never touch it, a restricted product can make sense. But roughly 6 in 10 Canadian mortgages are broken or materially changed before a 5-year term ends, and very few of those borrowers expected to be in that group.
Related terms
Prepayment privilege
How much a closed mortgage lets you pay down each year without a penalty, typically 10% to 20% plus a payment increase.
Portability
A feature that lets you move your existing mortgage, rate and term to a new property instead of breaking it.
Prepayment penalty
The charge for paying off a closed mortgage early: 3 months of interest on a variable, or the greater of that and the IRD on a fixed.
This definition describes how the term is used in Canadian residential mortgage lending. It’s general information, not advice on your file. Rules, thresholds and rates change. Where a figure is quoted, it’s current as of the date shown on the related guide.
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