How To Choose The Right Mortgage Strategy To Suit Your Situation?

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 finding the best mortgage rates is something entirely different.

How do I find the way to choose the right strategy for me?

We have a very easy answer to that question. Get in touch with a specialized mortgage expert who knows how to create customized mortgage solutions for his customers (prêt hypothécaire). The answer is easy, but the reasons for this are not:

- We can’t predict with accuracy the direction of interest rates, or how high or low they will go in the future.
- Economic factors of today must be considered.
- A strategy must be individualized for each client.

Don’t expect anyone who is not experienced to be able to address these issues. To find the right solution, you have to have a mortgage consultant who has the ability to make the proper analyses of the markets as well as your own individual situation.

No one can help you choose the mortgage strategy for you unless he has intimate knowledge of each mortgage strategy that is available (both the good points and the bad points), can calculate where you stand in the interest rate cycle and can make an educated guess about the interest rate directions over the next decade.

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.

In order to understand and work with these trends, two rules of the economy need to be applied:

1. Interest rates typically follow the inflation rate. This means that if we see the CPI (Consumer Price Index) go up, we can expect an increase in interest rates.

2. Interest rates reflect the health of the economy. In a strong economy, interest rates will be higher because there is more demand for money, and when the economy is less strong, interest rates will be lower.

We cannot predict interest rates with real accuracy, but we know that interest rates over the last thirty years were averaging 9.6%, while they are now around 5%. (pour un prêt hypothécaire)

What are the different strategies?

There are several basic strategies, each able to be combined with several options, and it is often advantageous to combine two strategies to take advantage of the market.

All this to say that it is better to consult an accredited mortgage professional.

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 allows 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 buy 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 repair a poor credit rating in order to obtain an excellent rate in the future.

By comparing these strategies you will learn to appreciate what good mortgage planning can do, and enjoy savings over the entire life of your mortgage (pret hypothecaire).

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 explanation and should be coupled with your long-term objectives and the current state of the Canadian economy.

All of this points to only one thing-you really need a professional who is looking out for your best interests in order to find the perfect mortgage loan strategy. The best thing about this approach is that you will learn a lot about your situation and the economy, and this education is all free!