Choosing your mortgage strategy - prêt hypothécaire
A good mortgage strategy canl save you a lot of money: thousands and even tens of thousands of dollars on a $100,000 mortgage.
That's a lot of money.
We will now take the time to answer a major question :
What is the best 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 borrower.
Don't expect anyone who is not an expert 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 excellent knowledge of each mortgage strategy that is available (both the positive 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 movements over the next decade.
Volumes and volumes have been written about interest rates, interest rate cycles and the economic climate in general and it is a complex subject. A basic synopsis of historic interest rates is as follows:
-There was a general upward trend in interest rates between 1950 and 1980.
-There was a general downward trend in interest rates between 1982 and 2003.
-Interest rates have remained fairly flat from 2003 to 2006.
If you didn't understand that interest rates trend, you would not have been able to design successful interest rate strategies. Designing an interest rate strategy meant for falling interest rates when the rates are trending upward will spell disaster.
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 forexpect 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.
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.
Here are the basic mortgage strategies:
1. The 5 times 5: a mortgage is continually renewed every five years for a five year term.
2. Long term: the rate is fixed on a mortgage for 15, 20 or 25 years.
3. Variable rate: the interest rate changes over the life of the loan, based on the Bank of Canada base rate.
4. The Smith Maneuver: the borrower can deduct the interest paid on a loan for a private residence from his income tax. This applies to both salaried or self employed individuals.
5. Retirement: Using the home equity as retirement income.
6. No down payment: by calculating the savings, you decide whether it may be better to buy a house sooner without a 5% down payment, rather than later while accumulating the down payment and paying rent in the meantime.
7. Less than perfect credit: The borrower fixes his credit rating in order to obtain lower eventual mortgage rates.
An expert 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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