Fixed or float? Combination mortgages increasing in popularity:
TORONTO, May 17, 2010 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
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
"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)
RBC recently introduced a RateCapper mortgage, in response
to increased demand for mortgages options that provide both
rate and payment protection. The interest rate on the RateCapper
mortgage over the five-year term is based on the lower of
Royal Bank of Canada's prime rate, which is currently at 2.25
per cent, and a set maximum rate, currently capped at 5.50
per cent. Canadians can visit the mortgage centre www.rbc.com/mortgageadvice
for access to advice about all aspects of their homeownership
These are some of the findings of the RBC's 17th Annual Homeownership
poll conducted by Ipsos Reid between January 8 to 13, 2010.
The annual online survey tracks Canadians attitudes and behaviours
around home buying and home ownership. It is based on a randomly
selected representative sample of 2,047 adult Canadians that
was statistically weighted by region, age and sex composition
according to the 2006 Census data. The results are considered
accurate to within ±2.2 percentage points, 19 times
out of 20, of what they would have been had the entire adult
Canadian population been polled. The margin of error will
be larger within regions and for other sub-groupings of the
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Matt Gierasimczuk, Media Relations (416) 974-2124
Jacqui van der Jagt, Corporate Communications, (416) 974-1756
Sean Simpson (416) 572-4474 www.ipsos.ca.