How do you choose the right mortgage strategy to suit your situation? (prêt hypothécaire)

You can save thousands, if not tens of thousands of dollars on a mortgage if you choose the right loan strategy (prêts hypothécaires). Even on a $100,000 mortgage, the savings can be substantial.
So the real question is what should I be doing in addition to looking at interest rates?

How do you choose the right loan strategy to suit your situation? That’s simple. Get in touch with a mortgage broker (prêts hypothécaires) who is able to analyze all of the options available and make the right recommendation for you. Why do you need an expert for this?
- We don’t know what interest rates are going to do, go up, down or stay in a narrow range.
- We don’t know enough about economic situation and how it influences interest rates.
- Each borrower needs a strategy designed for him alone, since each of us has our own needs and long range plans.

In order to be able to address these issues, you have to have the experience and knowledge to be able to examine all of the options available. Only a experienced mortgage expert is able to do that.

An expert such as this will understand each strategy that is out there and how it should be applied, will know how to properly combine strategies in the best way to serve the borrower, will understand 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 books, 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 fundamental 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 economy, 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 a number of basic mortgage strategies available, and then permutations of each of them that yield us a variety of options. Picking the right strategy or combination of strategies is critical to choosing the right mortgage package for each borrower. Only an accredited mortgage professional has the experience and expertise to do this for each client.

The basic mortgage strategies:

• 5 times 5 – renew a mortgage five times with a fixed term of five years.
• Long-term – a fixed-rate mortgage for 15, 18, or 25 years.
• Variable rate – mortgage whose rate changes with the base rate of the Bank of Canada.
• ‘Smith Maneuver’ and the cash flow dam – a strategy that permits you to eventually deduct interest paid on a private house from your personal taxes (salaried or self-employed worker).
• More retirement – an efficient manner of using the equity in your home to supplement retirement income.
• No down payment – This strategy allows one to calculate the savings and purchase a home right away without a down payment, rather than rent an apartment while you accumulate the minimum down payment of 5%.
• Less than perfect credit – help re-establish a poor credit rating in order to obtain an excellent rate in the future.
By comparing these strategies you will learn to appreciate what a good mortgage strategy (pret hypothecaire) can do, and enjoy savings over the entire life of your mortgage.
Don’t forget that a good strategy is 21 times more valuable than simply negotiating the best interest rate.
Each strategy deserves its own personal analysis and should be coupled with your long-term objectives and the current state of the Canadian economy.

So what should a borrower be doing? The only way you can be guaranteed to find the loan strategy that works for you is to contact a mortgage expert and work with him towards the perfect strategy for your situation. The consultation is free, but it may save big in the long run.

Gregory is an Accredited Mortgage Professional (AMP). To get more information on mortgage - pret hypothecaire, please visit: Hypothèque - Mortgage Intelligence