Because the economy is sending out so many mixed signals of late – inflation or deflation, interest rates going up or going down, employment statistics good, no wait, not good – consumers have an appetite for anything that gets the bases covered. Many people are taking a wait-and-see approach to such things as refinancing their home loans, consolidating debt, or getting a second mortgage.
The hybrid mortgage is kind of an interesting product that lets you have the best of both worlds. Typically how they work is that fixed rate mortgages cost more, i.e. they have higher interest rates. However, they offer stability because the payments are the same for the life of the mortgage. Variable rate mortgages usually come with lower interest rates, however the rate could change over time and who wants their rate skyrocketing to 18%. We haven’t seen that in decades, but you never know – there is some risk there.
How the products work is that the mortgage is split with one part (often 50/50) being a fixed-rate mortgage while the other is variable. You have less risk of your interest rate jumping up (the fixed half) and a chance to save money if rates fall or remain stable (the variable half). The mortgage’s length can also be divvied up to a given specification. Although this is getting a bit complicated – and you want to make sure you understand what your mortgage specifies as its terms.
Increasingly, with many consumers sitting on the fence a bit about these kinds of decisions, banks have begun to offer these products that offer the best of both worlds. As any good investor knows, diversification is a good thing, so these mortgages are worth a look.
Take a look at this article in the National Post for more information on the mortgages, and some interesting mortgage brokers‘ perspectives.
