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If you focus only on securing the lowest interest rate on your mortgage, you may be doing so at the expense of flexibility that can sometimes cost you over the long run.

For some products, this means overall inferior mortgage features, but some mortgages come with huge restrictions and clauses that can limit your options in the future. 

Take the bona fide sale clause, for example. 

It’s a common restriction on some of the rock bottom mortgage rates and one that can tie your hands should you need to get out of your mortgage early.  For any reason other than a sale and even that can cost more. 

If your mortgage contains a bona fide sales clause, it means you cannot pay out or break your mortgage before the end of your term unless you sell your house. And even then, the sale must be at "arm’s length” and at fair market value.  Meaning you cannot simply sell to a family member.

The also applies if you are wanting (or needing) to refinance their mortgage mid-term. 

This may seem harsh at first glance, but lenders who offer rates with a bona fide sales clause shouldn’t be faulted. These restrictions are a necessary trade-off in exchange for obtaining some of the market’s lowest rates. 

The lender is reducing its profits in order to offer a very competitive rate, so it’s reasonable that they want to make sure the client stays with them to the end of the term. For a lender, an early payout costs money and would further erode an already small profit margin. 

So, should you avoid mortgages with a bona fide sales clause?

Not necessarily. There are cases where the buyer may weigh the added restrictions as being worthwhile to secure a rate that’s substantially lower compared to other full-featured products. 

But that will depend largely on each individual circumstance and the potential rate savings.  

If you do consider a mortgage with a bona fide sales clause, you should be sure there’s almost no chance you would need to break your mortgage before the end of the term.  Now everyone says they won't - but life happens.  Be it an increase in family size, job loss, death or sickness in the family.

All I can say is choose your mortgage products carefully

Before rushing in to a mortgage, it’s important to consider not only the interest rate, but also all the additional features that it includes—or doesn’t include. Products with features such as longer rate holds, generous prepayment privileges and discount penalties—to name just a few— can often prove more valuable than the initial rate savings after closing.  The interest rate for a mortgage is maybe 1/4 of a page, in a 4-10 page document.  What's in those other pages is very important.

This is where the services of a licensed mortgage broker - me, can prove invaluable. I can help you assess the pros and cons of any mortgage and help find the product that works best for you.