What is the best way to choose the right mortgage strategy? - pret hypothecaire

Establishing 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 completely different.

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 professional is able to do that.

To choose the right mortgage strategy you must:
• know the all of the features of available mortgage products;
• identify where you are in the interest rate cycle; and
• assess the probability of an increase or decrease in rates over the next 10-15 years.

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.

The two rules:
• Interest rates track inflation. When the consumer price index goes up, rates increase and so on.
• Interest rates are linked to the economic health of Canada and the United States. When everything is going well the rates increase, and when things aren’t going well they decrease.

Nobody knows the future of interest rates - prêts hypothécaires. All we know is that the average interest rate over the last 30 years is 9.26% and that now it is approaching 5%.

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 strategies that a mortgage professional 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 term 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 home as additional income for retirement.
- A no down payment loan allows the borrower 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 a certified mortgage professional to establish a personalized strategy. It’s free and … enriching.

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Gregory is an Accredited Mortgage Professional (AMP). To get more information on mortgage - prêt hypothécaire, please visit: Hypotheque - Mortgages

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