Mortgage “tranches”

When requesting a loan, buyers will have the option to choose contrat duration ranging from 1 month up to 25 years (depending on the mortgage provider financing policies).

If they want to, buyers can decide to split their total loan amount into « tranches » (called “Tranche hypohtécaire” in french), with each « tranche » having a different deadline and accordingly, a different rate being applied to it.

The advantages of deviding your mortgage into « tranches » :

• You consider 10 years mortgage rates too expensive and dont want such a high monthly payment ? By splitting your loan in one « tranche» of 5 years (the shortest the lenght of the contract, the lower the rate), and one of 10 years for exemple, you will reduce your monthly payments.
• Let’s say rates are particularly high at the term of one of your « tranches », you’ll be happy not to have to refinance your whole mortgage at that point, but only the amount of that « tranche ». By spreading your mortgage with different deadlines, you lower the risk.

Disadvantages:

Even though there is only one disadvantage, it is an important one. Let’s say you have chosen to sign for 2 « tranches », one with a 3 years and another one with a 10 years deadlines. When the 3 years « tranche » will come to term, you will not have the possibility to switch it to another mortgage provider, since the 10 years « tranche » will still be running. You will then be «at the mercy» of your current provider. «Tranches» with terms spreading over 3 years can generally not be switched to other mortgage providers.