The house buying market is hot and heavy and for some people, it might even seem that their own house is way out of reach. That’s why it’s crucial to know all of the options out there when talking about mortgages and financial obligations. The most important thing when buying your home is planning. How will it affect your monthly finances, how will it change your lifestyle and how will you pay everything off? Those are the questions you must find an answer to before calling the realtor.

When it comes to rates and monthly payments, it’s easy to get confused and overwhelmed, especially in the situations we are facing today, with inflation and pandemic recovery.

So, committing to a specific rate doesn’t sound appealing to some. And to them, we say – hybrid mortgage. You can benefit from both rising and falling interest rates with hybrid mortgages, as they offer some protection from rising interest rates.

What is a Hybrid Mortgage And How Does It Work In Canada?

A type of mortgage that combines parts of fixed-rate and variable-rate mortgages. You split the mortgage into two parts and each will have a different type of rate. The thing is, the two portions of the mortgage can have independent terms, which might lead to difficulties in switching lenders. For example, if you choose to have a variable rate for two years, but a fixed rate for three. Also, you can choose to have different rates based on the mortgage amount and go halfsies for each part.

With hybrid mortgages, you have multiple components on an approved loan: different rates, different term lengths. But, if you choose to have different term lengths and decide to end the contract at some point earlier than you thought, you will probably be in the middle of the other term which can lead to penalties – since to get out of that one, you have to break the contract. If you manage to match all the terms with the same date, you can avoid the penalties and get out of a hybrid mortgage worry-free.

Pros Of Hybrid Mortgage In Canada

The main benefit of this type of mortgage is having both fixed and variable rates at the same time. That way you stay protected if, for example, variable rates go up a lot. While your variable part might suffer the consequences of higher rates, your fixed part of the mortgage is still intact. On the other hand, if the rates go down, you still benefit from having the variable part. Your monthly amount can be lower if changes in rates happen – you don’t have that option with fixed-rate mortgages. With the hybrid model, you can be sure the rates will remain low in a certain time frame.

Cons Of Hybrid Mortgage In Canada

Usually, hybrid mortgages end up costing more than a variable rate mortgage, and the lender has more power over you, as we mentioned above. It can be tougher to go through with an early payoff and it’s more possible that you won’t pick the most cost-effective option.

The Takeaway

In some cases, a hybrid mortgage is the better option, depending on your preferences. If you’re a person that wants fixed-rate security and likes having the same monthly amount for payments, but would also like to benefit from possible lower variable rates, then this option is a good idea. Either way, whatever mortgage you might be thinking of getting, it would be wise to consult a broker. They can give you advice on all of your possibilities and find the perfect rates that would work for you based on your preferences and finance. Give us a try, we would love to hear from you!