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…