Here’s the situation: you’re in the market for a mortgage. Your timing is perfect because rates have never been so low. Your colleagues at work took a variable and can’t believe the unbelievably low effective rate they are paying. Your parents are conservative old school and think it would be foolish to pass up on locking in a fixed 5 year for less than 3.50%. What are you to do?
Take the best of both worlds!
At the time of writing the effective rate for a 5 year variable rate mortgage is 2.55% with very little probability that the Bank of Canada prime rate will change in the near to mid-term. A fixed 5 year is at 3.49%. The spread between the two options is only 0.74%. If you are a consumer trying to decide fixed vs variable, it would be difficult to determine which option will out perform the other. We are really in uncharted territory… both have pros and inherent drawbacks.
Here’s how you can protect yourself: take a 50/50 mortgage. The 50/50 mortgage allows you to lock half of your balance as a fixed rate and the remaining half as a variable rate mortgage. In doing so you are benefiting from the positives of each and spreading the risk over your entire mortgage.
Most people would agree that investment diversification is the key to a solid investment portfolio. The same holds true for your mortgage: Rate diversification.
There are only a handful of lenders who offer these great 50/50 mortgage products. One of my favorites is Merix Financial who are currently offering their 50/50 Wise Mortgage at 3.02%
VARIABLE: P-.45 (2.55%)
If you have any questions or would like to see if a 50/50 mortgage is the right fit for your mortgage needs get in touch with me. Best of all, I get compensated through a finders fee so my service won’t cost you a thing.
September 9, 2011