There is a lot to consider when deciding whether to go for a fixed or variable rate mortgage – especially, your tolerance of risk and your ability to sleep at night. Generally, fixed rate mortgages charge a higher rate and cost more, but payments are fixed for the term of the mortgage so you know what amount is coming off your principal. Variable rate deals, on the other hand, have generally cost less over the term of a mortgage but payments rise -- and fall -- with rate changes. In recent years, a number of lenders have begun offering mortgages that feature a fixed and variable combination.
For example, you have half your mortgage as a five-year fixed rate, and you could take a variable rate mortgage for the other half.
A number of brokers have seen increased interest in these umbrella products.
Combination or hybrid mortgages are growing in demand mostly because people are unsure where the market is going. For those who are not comfortable locking in the full amount and want to play with the prime rate, there are some great variable rates out there where you're paying 1.80%, which is phenomenal."
As well as being exposed to different interest rates, the amortization period for each segment can also be different.
As with all mortgages, it pays to ask questions and read the fine print.
"There are a lot of differences with mortgages, and you have to be very careful with the lender you choose. I will disclose upfront the differences and provide you with a better rate on either fixed or variable that suits your financial needs.
Overall, by doing the combination mortgage you will probably pay less over the life of a mortgage ... if a component of it is at the lower variable rate."
