Hybrid Mortgages: Best of both worlds?

Hybrid mortgages – also known as 50/50 products – include an equal mix of fixed-rate and variable-rate components within your single five-year mortgage.  This means you get the best of both worlds – the security of fixed repayments with the flexibility of a variable rate. Aside from a straight 50/50 mortgage, there are other products available where you can also have a combined variable and fixed mortgage – but not necessarily have to split it 50/50.

The Scotia Total Equity Plan (STEP) enables a borrower to opt for a partial variable and a partial fixed mortgage.  In fact, it can actually go one step further and enable you to split your mortgage three ways using a mixture of terms (such as one, three or five years, etc.) and fixed and/or variable rates.  You can for example place a portion of the mortgage in a five-year fixed, some in a five-year variable and the remainder in a one-year-fixed!

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 remaining near historic lows, a 50/50 or combined mortgage may be a great alternative.

In essence, since it’s extremely difficult to accurately predict rates over the long term, a 50/50 or combined mortgage offers interest rate diversification, which can help reduce your level of risk.

Who can benefit: 

  • Borrowers who are savvy first-time homebuyers for whom a full variable would be too risky, since they haven’t built up an equity in their home.
  • Borrowers who would normally go fully variable but are afraid prime rate is at its bottom.
  • Borrowers who aren’t comfortable being locked into a fully fixed rate
  • Borrowers who cannot decide between a fixed or variable mortgage.

Original article from: Dominion Lending Centres

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