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Author: Gregory van Duyse Article source: http://www.articledeshboard.com/. Used with author's permission.
You can save thousands, if not tens of thousands of dollars on a mortgage if you choose the right loan strategy (pr? hypoth?ires). Even on a $100,000 mortgage, the savings can be substantial.
So the real question is what should I be doing besides looking at interest rates?
How do I choose the right mortgage strategy?
The easy answer: contact a mortgage specialist who specializes in creating a unique mortgage strategy for their clients - pret hypothecaire.
Why?
There are three good reasons:
1.We can't predict the future of interest rates in Canada.
2.The right strategy must take into account the current and future economic context.
3.One has to customize it according to your objectives and personal situation.
All this is not easy, and it is best to consult a mortgage broker who does this every day.
But let's not stop there.
The more difficult response is to analyze several factors in creating a mortgage strategy.
An expert such as this will understand each strategy that exists and how it should be applied, will know how to properly put together 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.
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 follow a 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 economic environment, 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 few basic mortgage strategies available, and then combinations 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 borrower.
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 your residence 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 important 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!
Gregory is an Accredited Mortgage Professional (AMP). To get more information on mortgage loans - pr?hypoth?ire, please visit: Informezvous.com - hypoth?e
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