The popularity of combination mortgages - which offer both fixed and floating rate segments - is on the rise, according to RBC's 17th Annual Homeowners Survey. In fact, 40 per cent of Canadians who are likely to purchase a home within the next two years plan to take out a combination mortgage, compared to 32 per cent in 2009.
The surging popularity of combination mortgages indicates that Canadians are trying to maximize low interest rates while at the same time retaining the security of a fixed mortgage. The poll also revealed a marked gender split with more women (46 per cent) than men (35 per cent) preferring a combination mortgage.
"Although interest rates are expected to rise, our study shows that not all Canadians intend to automatically opt for a fixed mortgage with a longer term," said Marcia Moffat, head, Home Equity Financing, RBC Royal Bank. "As consumers begin to learn about the benefits of mortgage diversification, we're seeing more homebuyers gain a better comfort level with adding floating rate mortgage options."
While combination mortgages are gaining in popularity, fixed-rate mortgages continue to be the most common choice for potential buyers and are preferred by 44 per cent of Canadians likely to buy a home within the next two years. Atlantic Canadians are most likely (54 per cent) to opt for a fixed rate, with Ontarians (41 per cent) least likely to do so.
"Many Canadians believe that a fixed-rate mortgage is the only way to have a locked-in and predictable payment, but a variable rate does not always mean variable payments," noted Moffat. "With our floating-rate mortgage, the portion of your payment that's applied to the principal changes, as interest rates change, not the actual payment itself. This means that when interest rates go up, your payment will pay off more interest; when interest rates go down, your payment will pay off more principal."
When current homeowners were asked about the impact of potential interest rate increases, 66 per cent said they were concerned, with women (70 per cent) more concerned than men (60 per cent).
"We expect the Bank of Canada to increase the overnight rate starting in June, with the pace of increases being fairly steady through the remainder of 2010 and 2011, which will continue to put upward pressure on borrowing costs," added Paul Ferley, assistant chief economist, RBC Economics.
Mortgage findings at-a-glance:
Fixed rate mortgages are preferred by:
- 44 per cent of Canadians likely to buy a home within the next two years - down from 47 per cent in 2009
- 54 per cent of Atlantic Canadians (the highest in Canada)
Variable rate mortgages are preferred by:
- 16 per cent of Canadians likely to buy a home within the next two years - down from 20 per cent in 2009
- 19 per cent of men compared with 12 per cent of women
Mortgage term most likely to be chosen by those opting for a fixed or combination mortgage:
- Five-year term: 43 per cent
- More than five-year term: 29 per cent
- Three-year term: eight per cent
63 per cent: the proportion of Canadian homeowners who have mortgages (compared to 56 per cent in 2005)
$124,131: the average amount remaining on Canadian homeowners' mortgages (compared to $109,504 in 2005)