Mixed Rate Mortgages – Key Benefits
“Another Strategy To Deal With Rising Interest Rates Is A Mixed Rate Mortgage and The Benefits It Provides”
With mortgage rates on the rise, many mortgage holders are still reluctant to make the move away from a variable interest rate in order to lock in a longer term fixed rate where rates have already gone up.
In this situation, a borrower may be moving from a rate under 2% to something closer to 4.5% just to protect themselves against long term interest rates that are unknown at this time. Going from 2% to 4.5% is a big jump in terms of your mortgage payment with the interest cost more than doubling.
So one strategy that mortgage holders are now looking more closely at is the mixed rate mortgage which has both a variable interest rate portion and a fixed rate interest portion. Effectively, with this type of residential mortgage program, you have two mortgages in one.
The main benefits of this type of residential mortgage program are related to interest rate and principal prepayment.
With respect to interest rate, you would end up with a blended interest rate based on the variable rate and the amount of principal assigned to the variable component and the fixed term rate and the amount of principal assigned to the fixed component.
Most of these mixed rate programs offer generous prepayment options which provide you a great deal of flexibility to manage your interest risk and costs going forward.
As an example, if rates spike up, you can pay down the variable rate portion of the mortgage and then you will be left with the fixed rate to effectively put a ceiling on your near term interest rate risk.
If interest rates flatten out or even start to go down again, you also have the ability to prepay the fixed interest portion as well to take advantage of lower rate levels that you feel more secure about.
These dual rate mortgages, or split mortgages as some like to call them are a great tool for those that like to have the most flexibility with their mortgage program without taking excessive interest rate risk.
If you would like to learn more about mixed rate mortgages, please give me a call and so we can go through your mortgage requirements and see how this type of mortgage product would apply to you particular situation.
About the Author Joe Walsh
I'm a Toronto Mortgage Broker that arranges mortgage solutions on residential and commercial real estate property. With over 30 years of mortgage financing experience, I'm able to quickly assess your financing requirements and provide relevant solutions for your immediate consideration. Joe Walsh Google+ YouTube Channel