Hybrid Mortgages Canada
No, it is not fancy name. There is such thing called hybrid Mortgages in Canada. The trend is picking up and intends to continue. Canadians are doing more research and like to see their options before signing up for traditional mortgages.
Due to uncertainty of the mortgage rates, Canadians are on the fence about where interest rates are heading, you may want to consider a hybrid mortgage, one of the latest products offered by the major Banks and other financial institutions that can help you hedge your interest rate bets.
A hybrid mortgage is a mortgage with multiple terms. Hybrid mortgages are a new solution to this old dilemma. At least that is the theory. As with anything financial, it all depends on market forces that are beyond your control.. In the case of hybrid mortgages, your interest rate payments fluctuate, so you need to be able to weather some stormy waters before signing up.
The hybrid works as follows. You split your mortgage into two portions - often 50/50, but not always. One portion is fixed, i.e. locked in like a typical 5-year fixed mortgage. The other portion is variable, giving you half your mortgage at a lower interest rate. The concept is similar to dollar-cost averaging, where you buy a little bit of an investment each month, paying more some months and less others, with the result that the total cost of the investment averages out to less than it would be if you simply bought it in a lump sum
These terms may be part fixed and part variable, and/or part long-term and part short-term.
For example, a hybrid mortgage might be contain the following:
30% in a 3-year fixed rate
30% in a 5-year variable rate
40% in a 1-year fixed rate
Of course, payments on the variable portion are subject to change according to fluctuations in the prime rate, and that is where the benefit of the hybrid takes effect. When interest rates go up, the fixed portion of your mortgage stays the same, so you experience less of an impact.
If interest rates go down, the variable portion costs less, making up for the higher costs on the fixed side. In uncertain times, the hybrid can make sense.
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The above information is provided as a guideline and is not intended to give a professional legal advice. Please consult a real estate lawyer for their opinion on your particular case.
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