Important mortgage features for first time home buyers

Mortgages 101Mortgages Made Easy

When shopping for a mortgage, most consumers believe securing the best interest rate is their first priority.  However, obtaining the best rate does not always ensure you get the best mortgage!  A good approach is to look at the individual features of the mortgage as well. It need not be overwhelming!

Last Updated: May 2019
Here are some questions you need to ask:

1. Is this mortgage assumable?

A few years from now, you could decide to sell your home.  At that time, a low-rate mortgage could become an extra selling point.  If your mortgage is assumable, (meaning it can be transferred to another borrower), it can allow the purchaser to take on your mortgage’s terms and payments as part of the sale. This can be an attractive incentive, particularly if rates increase down the road. 

2.  What are the penalties for early repayment? 

When choosing a mortgage, keep in mind that penalties are often the greater of three months’ interest or an interest rate differential (IRD) calculation, which is the difference between your current rate and the new rate.  Penalty calculations vary widely with lenders, so add penalty to your considerations when choosing a mortgage.  The Big 5 Canadian Banks (and any other lender that uses 'discounts to posted" in their IRD penalty calculations) are notorious for extreme payout penalties and it is difficult to avoid a payout penalty if you move or need to refinance.

3. What are the pre-payment privileges?

Pre-paying a portion of your mortgage balance penalty free can add up to huge savings over the term of your mortgage.  However, these privileges will vary by lender.  Some lenders will allow you to double up payments periodically, or make lump-sum payments of up to 20 per cent of the principal once a year. When negotiating your mortgage, make sure you understand the size and frequency of payments your lender allows.

4. Do you need a skip-a-payment option?

Some lenders offer an option to skip a payment without penalty, which may come in handy in a time of need.

5. Is your mortgage portable?

Many mortgages have a portability feature that allows you to transfer your existing mortgage over to a new property, but not all portability terms are the same. Some lenders allow as long as 120 days to transfer the mortgage, but others only allow for a few days or a week.  Find out which rules apply to you.

6. What are your conversion options?

Some lenders offer interest rate caps or convertibility features on their variable or floating rate mortgages. These features can offer some protection if interest rates go up. An interest rate cap is the maximum interest rate that can be charged on a mortgage, regardless of the rise in interest rates. If your mortgage has a convertibility feature, you can “convert” or change it to a fixed interest rate mortgage during the term. Although the lender will usually not charge a penalty for the mortgage conversion, certain conditions apply – check with the lender.  For example it would be important to know, does your lender give you their best rate at conversion or their much higher “posted rate”? 


Choosing the right mortgage involves considering all the features of a mortgage, not just rate.  Working with a mortgage professional can help you make sense of the many options available to you. 

If you are interested in further information, check out this free guide Buying Your First Home: Three Steps to Successful Mortgage Shopping

To see if you can mortgage qualify, read here.