Hybrid Mortgages Gain Popularity

For many homeowners, the choice between a fixed or a variable rate mortgage is a difficult one. They agonize over whether to lock into a rate that is predictable and at which they’re comfortable or to go with a lower rate that will fluctuate. But for a growing number of Canadians and Torontonians, hybrid mortgages, which combine fixed and variable rate components, are the way to go. Forty per cent of Canadians that are likely to buy a home in the next two years plan to take out a combination mortgage, an RBC Survey released on Monday showed. Only 32 per cent of those surveyed a year ago were looking at the hybrid mortgage option.

“Although interest rates are expected to rise, our study shows that not all Canadians intend to automatically opt for a fixed mortgage with a longer term,” said Marcia Moffat, head of home equity financing, RBC Royal Bank. “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.”

Banks in addition to RBC that offer hybrid mortgages include Scotiabank, National Bank, HSBC and Laurentian Bank.

The beauty of the hybrid mortgage is that you can maximize low interest rates while retaining the security of a fixed mortgage. It reduces some of the risk exposure you take on with just a floating rate and also lessens the burden of trying to accurately time the interest rate environment.

Still, fixed-rate mortgages continue to be the most common choice for potential buyers and are preferred by 44 per cent of Canadians likely to buy a home within the next two years. The survey found that Atlantic Canadians are most likely (54 per cent) to opt for a fixed rate, with Ontarians (41 per cent) least likely to do so.