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Didn’t I say to stay away from these Hybrid Mortgages?

Is it just me or are the Banks pushing these Hybrid Mortgages more these days…?  RBC recently reported that 40% of Consumers buying a home in the next 2 years would consider a Hybrid Mortgage…

Wow!  That’s much higher than any figure I’ve seen…  And it doesn’t reflect the current level of Consumers that currently have a Hybrid mortgage. (current figures are at 6% according the Canadian Association of Accredited Mortgage Professionals).

Globe and Mail’s, Chaya Cooperberg, took a closer look at this product…..Oh, and by the way, a Hybrid mortgage simply splits your mortgage ….. part fixed rate and part variable rate.  The theory is that you can benefit from today’s lower Variable rate but also secure a fixed rate to protect yourself from future rate increases….  Sounds great but these products are flawed and DO NOT work in the Consumer’s favor.

Here’s what you need to know:

-studies point to Variable rate mortgages as having the lowest rate of interest over the life of your mortgage.. they just save you money….(your rate fluctuates with Bank Prime…up and down)

-fixed rate mortgages buy you the security of knowing what your rate and payment will be…but the key word here is BUY. Your paying for this insurance with a higher average rate over the life of your mortgage…  (plenty of studies out there to show this).

-combining these 2 products in one mortgage will limit your options… there is a portability feature but it’s not straight forward and we’ve received different explanations on how this actually works….. these mortgages are not transferable to other financial institutions….

-many borrowers that are currently in these products have staggered maturity dates meaning they can never get out without paying some sort of penalty…….

A better alternative to getting part fixed and part floating, is to go with a Secured Line of Credit.. the Floating portion is Open to repayment without penalty…   Keep in mind these products are not portable to a new home and they are not transferable…At least you won’t get stuck with a penalty…

Steve Garganis View All

As an industry insider, Steve will share info that the BANKS don't want you to know. Steve has appeared on TV's Global Morning News, CBC's "Our Toronto" and The Real Life TV show. He's also been quoted in several newspapers such as the Globe and Mail, The Toronto Star, The Vancouver Sun, The Star Phoenix, etc.

2 thoughts on “Didn’t I say to stay away from these Hybrid Mortgages? Leave a comment

  1. Hi Steve, interesting post but please don’t paint them all hybrid mortgages with the same brush. The 50/50 product at Merix is different than some of the others. A couple of key points about our product that make the Merix offering extremely consumer friendly:

    • 50/50 is portable
    • We don’t stagger maturities. Even when someone wants to convert their ARM to a fixed we will match up the maturities so both products mature at the same time
    • 20/20 prepayment on both half’s allow clients that want to prepay the choice of where to allocate their prepayment dollars

    It’s easy to say that all clients who take variable rate stay variable until maturity, but this isn’t true and I believe when ARM start to go up, there will be a lot more interest in clients locking in (uncertainty, cash flow etc…). The beauty of the 50/50 is that they have hedged their mortgage and locked in at todays great fixed rates (4.35% is already market leading). Chances are when someone does lock in it won’t be at todays current fixed rates.

    So I would say that based on a clients situation, the 50/50 is a great consumer friendly solution that really offers the best of both worlds.

    Geoff Charkow, Director of Business Development
    Merix Finanical

    • Thanks for your feedback Geoff,

      It’s a good topic for discussion and one that we all need to examine and discuss further..

      I agree that Merix probably has the best Split Mortgage on the Market today….

      From my experience, if a borrower is concerned about rate fluctuation with a variable rate mortgage…if they can’t stomach their rate going up and down, then the split mortgage won’t alleviate this anxiety…..

      Statistics show that Variable rate mortgages are the proven winner over the last 5, 10, 20 years or more…

      I do want to confirm one thing though… Isn’t the Merix 50/50 Wise mortgage only portable to a ‘New 50/50 Wise’ mortgage? The Merix product sheet states “Can port the interest rate, insurance premium and remaining term to a new 50/50 Wise Mortgage or the customer can lock in the ARM portion prior to porting and port the whole mortgage as a blended fixed rate. No penalties will be charged in either scenario.”

      Thank you. Steve Garganis

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