7 June 2010

We’ve talked about variable rate’s benefits for the certain type of borrower, but still when the rates go up, some people just worry without the fixed payment. So it’s always necessary to choose the right mortgage term.
Many of us forget about another variant that can save us money – hybrid mortgage.
For example, if you trust fixed rate mortgages more, you can instead allocate a small part to a variable — 1/3 for example.
On a $200,000 mortgage it would be:
•    66.7% ($133,400) in a 5-year fixed at 4.39% [sample bank rate]
•    33.3% ($66,600) in a 5-year variable at 2.00% [sample bank rate]
If you expect a 2.50% prime increase by year-end 2011 (as many economists predict), this decision could save you about $669 over 60 months.
You may ask: “Why not go 100% variable if the benefits are so great?”  You can ask the same question about stocks and bonds. Generally, equities are more profitable than bonds long-term. But it doesn’t mean that this variant works for everyone.
People are different and when it comes to money they all have their own priorities. Of course, well-qualified borrowers can afford at least hybrid mortgages, but it’s always your own choice.
HINT: if you choose variable mortgage –  make extra payments or increase your regular mortgage payment to get an advantage from historically low rates and pay down principal balance faster.