Hybrid mortgages – also known as 50/50 mortgage products – include an equal mix of fixed-rate and variable-rate components within your single mortgage. This means you get the best of both worlds – the security of fixed repayments with the flexibility of a variable rate.
Although there was a time in recent years when mortgage experts considered a variable-rate mortgage as the obvious choice to save mortgage consumers money over the long term, with fixed rates at a historic low, a 50/50 mortgage may be a great alternative for you.
In essence, since it’s extremely difficult to accurately predict rates over the long term, a 50/50 mortgage offers interest rate diversification, which can help reduce your level of risk.
If you opt for a 50/50 product, half of your mortgage is locked into a five-year fixed rate and half is at a five-year variable rate. You can lock in your variable-rate portion at any time without paying a penalty. As well, each portion of the 50/50 mortgage operates independently – like two separate mortgages – yet the product is registered as only one collateral charge.
The 50/50 mortgage product is well-suited to a variety of borrowers, including those who:
• Would normally go fully variable but are afraid prime rate is at its bottom
• Aren’t comfortable being locked into a fully fixed rate
• Can’t decide between a fixed or variable mortgage
• Savvy first-time homebuyers
Some features of the 50/50 mortgage include:
• 20% annual lump-sum pre-payment privileges
• 20% annual payment increase ability
• Portability (the option to transfer your existing loan amount to a new property without penalty)
As the 50/50 option isn’t anything new it may be the right time to consider it on your upcoming renewal. Most lenders that offer this type of product include an no-fee solution to switch your mortgage to take advantage of this borrowing approach. According to one study by the former Canadian Association of Accredited Mortgage Professionals (CAAMP), 5% of Canadian mortgage holders have 50/50 mortgages compared to 28% with variable-rate mortgages and 68% with fixed-rate mortgages. Given where we are nowadays in lockdown and much uncertainty but with historically low rates, the 50/50 mortgage could quickly gain momentum.
