Fixed or float? Combination mortgages increasing in popularity: RBC poll
TORONTO, May 17 /CNW/ - 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)
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 <http://www.rbc.com/mortgageadvice>
for access to advice about all aspects of their homeownership goals.
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 survey population.