How do you choose the right loan strategy to suit your situation? (prêts hypothécaires)

Finding the right mortgage strategy (pret hypothecaire) can mean a lot to you in the long run. It can save you thousands of dollars over the life of the mortgage loan; on a $100,000 mortgage, it can easily mean as much as $10,000 in total. What you really want to be doing, instead of shopping for the best mortgage rates is something completely different.

How to choose the right mortgage strategy?

The easy answer: contact a mortgage consultant who specializes in creating a unique mortgage strategy for their clients - pret hypothecaire.

Why?

There are three good reasons:
1.We can’t predict the future of interest rates in Canada.
2.The right strategy must take into account the current and future economic context.
3.One has to customize it according to the client’s objectives and personal situation.

All this is not that simple, and it is best to consult a mortgage broker who does this every day.

But let’s not stop there.

The more difficult response is to analyze several factors in creating a mortgage plan.

An expert such as this will understand each strategy that exists and how it should be applied, will know how to properly put together strategies in the best way to serve the borrower, will know about the economy and interest rate cycles and how they will affect the chosen strategy.

The interest rate cycles.
There are essentially three scenarios and two fundamental rules to understand interest rates (all this could take up several volumes, but we’re going to keep it as simple as possible).

Scenarios:
1. Rates are generally increasing (1950-1980)
2. Rates are generally decreasing (1982-2003)
3. Rates are generally stable (2003-2006).

Each of these scenarios demands a particular strategy. It could be disastrous to adopt a strategy conceived for descending rates and then see them climb.

Interest rates roughly follow two basic rules:

-They will more or less follow the inflation rate. If the inflation rate, as measured by the consumer price index increases, we should look for\expect an increase in interest rates.
-They are indicative of the health of the economy. In a strong economic environment, interest rates will tend to rise since money is in demand, and interest rates are the price of money. In a weak economic environment, demand for money is low and therefore interest rates are lower.

It is impossible to predict interest rates 100% accurately, but we can observe that interest rates were 9.6% on average over the last thirty years, and they are now about 5% - pret hypothecaire.

There are basic strategies to work with, and on top of that, a good mortgage broker will find ways of combining the features of different strategies to suit the needs of his client. It can never be one size fits all when it comes to home loan strategies; knowing the best strategy or combination of strategies in each situation takes a mortgage professional.

The basic strategies that your mortgage consultant will work with are the following:
- 5 times 5 is a situation where a mortgage is renewed five times with a term of five years for each renewal.
- A long term mortgage has a fixed rate on a 15, 20 or 25 year mortgage.
- A variable rate mortgage has a rate that changes during the life of the loan, with the rate based on the base rate of the Bank of Canada.
- The Smith Maneuver is when the borrower (whether he is a salaried employee, or self employed) or can lower his personal income tax by the amount of interest paid on his private residence.
- A retirement loan uses the equity in the property as additional income for retirement.
- A no down payment loan allows the home buyer to borrow the full amount of the purchase price. To decide whether this is the right decision, you have to do the calculations to see whether saving up for the 5% down payment while paying rent is better than taking out a larger loan to buy a home sooner and avoid paying rent.
- A less than perfect credit loan means that the borrower uses the funds to improve his credit to get better interest rates in the long run.

A well qualified mortgage broker will look at all of these types of loans and, combining that information with the personal information of the borrower, devise the perfect strategy for the borrower - prêts hypothécaires. That is why getting the best loan strategy will do so much more than just getting the lowest interest rate on a loan.

How to choose the strategy that is best for you?

I advise you to contact a professional in mortgage planning to establish a personalized strategy. It’s free and … enriching.

Gregory is an Accredited Mortgage Professional (AMP). To get more information on mortgages - prêt hypothecaire, please visit: Pret hypothecaire