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May 20, 2021

Hybrid mortgages catching on with homebuyers

It's the question Canadian homeowners continue to obsess over: Should I stay fixed or go variable?

Historically, borrowers have saved money by choosing a variable mortgage. But a pending upswing in interest rates, which can only move higher as the economic recovery takes hold, has some consumers looking to lock in at still low fixed rates.

Then why not do both by taking out a hybrid mortgage

Hybrids – sometimes known as 50/50 mortgages – include a mix of fixed-rate and variable-rate elements within a single mortgage. You get the best of both worlds, argue supporters: the security of fixed repayments with the flexibility of a variable rate. 

A good way to go? Well, some people seem to think so. 

According to recent RBC research, 40% of homebuyers planning to buy in the next two years intend to take out such a mortgage. That’s a big jump compared to last year when just 32% were considering a hybrid as an option.  

"As consumers begin to learn about the benefits of mortgage diversification, we're seeing more homebuyers gain a better comfort level with adding floating rate mortgage options," says Marcia Moffat, head of Home Equity Financing at RBC.

The academic research supports hybrids as well, Canadian Mortgage Trends reports: Quoting mortgage expert Dr. Moshe Milevsky, editor Rob McLister points out that: “Nobody can truly predict how rates will move over a five-year period. It’s just that simple.”

Milevsky therefore believes hybrids are a good form of mortgage risk management. “People should strongly consider mortgages that are part fixed and part floating,” he maintains, arguing that interest rate diversification benefits borrowers just like it benefits investors who buy portfolios of stocks.

Is there a hybrid mortgage in your future? Do you have another plan to hedge your bets as interest rates rise?

By Gordon Powers, MSN Money



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Gordon PowersGordon Powers

A long-time fund company executive, Gordon Powers now heads up the Affinity Group, a financial services consulting firm. Gordon was a personal finance columnist for the Globe & Mail for many years, has taught retirement planning...

Jason BucklandJason Buckland

The modern-day MC Hammer of money, Jason can often be seen spending cash that isn’t his with the efficiency of a Wilt Chamberlain first date. After cutting his teeth as a reporter for the Toronto Sun, he joined the MSN Money team with...