Split or Multiple-rate Mortgage

This type of mortgage divides the principle into different categories. Each category can have a different term and interest rate assigned to it. For example, a portion of the mortgage may be a line of credit with a short-term while the balance may be open mortgage with a longer term.

Benefits of Split / Multiple-rate Mortgages

If you are a person who likes to keep track of the market, then you may prefer the ability a split mortgage gives you to customize your mortgage product. Lenders who offer this type of mortgage allow you to divide your mortgage into up to five different sections, with each section having its own interest rates, amortization schedules and terms.

This is a strategy used by savvy buyers to spread their risk. It’s comparable to diversifying an investment portfolio. With a five-way split, at least one of the rates you choose is going to prove to be a wise choice.

At the same time, a split term mortgage allows borrowers to take small risks without making themselves too vulnerable. For example, a borrower may choose to allocate a small portion of the mortgage to a lower rate, short-term while opting to keep the remaining portion of the mortgage in a higher rate, long-term commitment.

The primary benefit of a split or multiple-rate mortgage is the power it gives you as a borrower to control how your mortgage works for you. At the same time, there are risks involved. It takes time and effort to ensure that you are managing your multiple-rate mortgage to the best of your benefit.

Customizing Your Mortgage

Instead of taking one fixed rate mortgage and hoping that interest rates won’t go down, you may split the loan into a fixed rate mortgage for say one half and a variable rate mortgage for the other half. In this way, if rates go up, half of your mortgage is protected from the price increase. If the rates go down, the adjustable rate mortgage will allow you to benefit.

Another option is to split the mortgage so one part is open and the other closed. The open mortgage allows you to accelerate payoff on part of the mortgage, while the closed mortgage may offer lower interest rates.

You can also customize the terms so you have a blend of long and short terms. You might use a short term to cover a renovation project you are planning.

As you can see, split or multiple rate mortgages give you even more options for customizing your mortgage to fit your long-term goals. If you are careful, you can use this strategy to help you pay your mortgage off faster.