Have You Considered Opting for a 50/50 Mortgage?

Like the potential savings of a variable rate mortgage but uneasy about the potential rate fluctuation? Prefer the safety of a fixed rate mortgage but think you’re willing to take a little risk for the potential savings of a variable rate? 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 remaining near historic lows, 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 (transferring your existing loan amount to a new property)

There are also hybrid mortgages available that offer different blends than 50/50. These are best suited to those people who are willing to actively manage their mortgage. The mortgage, up to 80% of the value of the house, can be split in whatever percentage the borrower prefers, between fixed rate, variable rate and line of credit. As the principal is paid down, the available amount on the line of credit goes up. Each portion of the mortgage carries different rates and the variable and line of credit portions are tied to the Prime Rate so they can fluctuate. Not for nor borrowers who want to know what their payment will be every month for the next five years but great for those who want a little bit of flexibility from their mortgage.

Ask your mortgage professional for more information if you think a hybrid mortgage may be right for you.