The popularity of combination mortgages is on the rise, according to new survey from Royal Bank of Canada.

According to RBC’s 17th Annual Homeowners Survey, 40% of Canadians who are likely to purchase a home within the next two years plan to take out a combination mortgage — which offer both fixed and floating rate segments — compared to 32% 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%) than men (35%) 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,” says 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% of Canadians likely to buy a home within the next two years. Atlantic Canadians are most likely (54%) to opt for a fixed rate, with Ontarians (41%) 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,” note s 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% said they were concerned, with women (70%) more concerned than men (60%).

“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,” adds Paul Ferley, assistant chief economist, RBC Economics.


The poll was conducted by Ipsos Reid between January 8 to 13. 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.

IE