How to beat the lowest home loan rates(taux hypothécaire)

One of the most important things you can do when you are considering buying a home is to choose the right mortgage strategy. Too many borrowers concentrate on interest rates, not realizing that choosing the right mortgage strategy can save them tens of thousands of dollars, while the savings on interest rates is minimal. (If you want to understand more about this concept, read How to beat the best rate!)

What’s the right mortgage strategy? Well, you probably can’t answer that question for yourself. What you can do is consult a mortgage specialist who specializes in custom mortgage packages. Why do you need to do this? The main reasons are
-we don’t know where interest rates are going.
-economic conditions, both present and future have to be considered.
-A mortgage strategy is a complex, uniquely personalized approach that takes each borrower’s situation into account.

You see, a professional mortgage consultant has the ability to conduct an in-depth analysis of various options that may or may not suit you. To do this, he has been trained in understanding all of the mortgage products available and to choose which one is right in a given situation. In addition, he knows where we are in an interest rate cycle and he can make a better judgement of the probable movement of interest rates over the next ten to fifteen years.

Thousands of papers and hundreds of books have been written about the movement of interest rates. But for a basic understanding you need to know the three scenarios that interest rates can take and the two rules that interest rates follow.
Scenario One: Interest rates rise, as they did from 1950 to 1980.
Scenario Two: Interest rates decline, as they did from 1982 to 2003.
Scenario Three: Interest rates remain stable, as they have from 2003 to 2006.
To work within these trends is important, since, if you use the wrong mortgage strategy (for example one designed for falling rates, and then rates go up), you will be paying way too much for your mortgage.

Next, you have to understand the rules of interest rates:
Interest rates reflect inflation. If there is an increase in the consumer price index, interest rates should increase.
Interest rates are tied to a country’s economic performance. A strong economy will mean higher interest rates, since there is a higher demand for money, and a weaker economy will mean lower interest rates, since the demand for money will go down. It is also important to understand the rules of interest rates. Interest rates follow two rules, one, that interest rates are reflections of the inflation rate, and two, that interest rates are closely linked to the economic performance of a country. What does this mean? If the inflation rate(the consumer price index) goes up, rates will go up, if the economy is strong, interest rates will go up. (Of course, the opposites are also true.)

Trying to predict interest rates is futile. Interest rates over the last thirty years averaged 9.26%, whereas they are now at about 5%. With this rate, you may choose to take out a 5 year fixed rate home loan. Remember, by doing so, even without realizing it, you have chosen a mortgage strategy, and this one could be a disastrous one. Refinancing every five years in an increasing interest rate environment would have cost a fortune.
Mortgage brokers have a number of mortgage strategies that they structure and customize for each borrower. A professional such as this will look at each option and find the right one for his customer.

He may decide among the following strategies:
A five year fixed term loan that is renewed every five years.
A fixed rate loan for 10, 20 or 25 years
A variable rate loan based on the Bank of Canada base rate.
Using the Smith Maneuver where the borrower can deduct interest from income tax.
Using the equity in a home to supplement retirement income.
Calculate the cost differences between renting while saving for a down payment, or opting for a no down payment loan.
Using a loan to improve a credit score for an eventually cheaper loan.

Good mortgage planning and finding the right mortgage strategy in each situation is what a mortgage broker will do in order to save mortgage expenses, sometime as much as 20 times or more, over the life of the loan.

Analyzing each of these strategies on its own is important, and then the borrower’s individual circumstances must be considered, as well as the general economy of the country. Not using a professional mortgage specialist to do these analyses can be dangerous and expensive. The best decision you can make is to contact a mortgage broker to assist you; this free consultation may be worth a fortune!

Gregory van Duyse is an Accredited Mortgage Professional (AMP). He is a Mortgage Broker for Mortgage Intelligence.