What Are 50/50 Mortgages?

There’s something new on the Canadian mortgage scene – hybrid mortgages – also known as 50/50 mortgages – they include an equal mix of fixed-rate and variable-rate components within a single mortgage. This means you get the best of both worlds – the security of fixed repayments with the flexibility and lower cost of a variable rate.

Although in recent times, most mortgage experts have considered a variable rate mortgage as the obvious choice to save consumers money over the long term, with fixed rates remaining near historic lows, a 50/50 mortgage may be something to consider.

In a nutshell, since it’s extremely difficult to accurately predict rates over the long term, a 50/50 mortgage offers interest rate diversification, which can help reduce your level of risk.

If you opt for a  50/50 Balanced Mortgage, half of your mortgage is locked into a five-year fixed rate and half is at a five-year variable rate. You can lock in your variable-rate portion at any time without paying a penalty. As well, each portion of the 50/50 mortgage operates independently – like two separate mortgages – yet the product is registered as only one collateral charge.

The 50/50 mortgage product is well-suited to a variety of borrowers, including those who:

  • Would normally go fully variable but are afraid prime rate is at its bottom
  • Aren’t comfortable being locked into a fully fixed rate
  • Can’t decide between a fixed or variable mortgage

Some features of the 50/50 mortgage include:

  • 20% annual lump-sum pre-payment privileges
  • 20% annual payment increase ability 
  • Portability (the option to transfer your existing loan amount to a new property without penalty)

This information is courtesy of Sarah Makhomet,  my good friend and expert mortgage broker at Dominion Lending. As always, if you have questions about the 50/50 mortgage product and whether it’s right for you, or any other mortgage-related questions, we welcome your comments!

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