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


by Gregory van Duyse - Date: 2007-02-22 - Word Count: 789 Share This!

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 only think about 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!)

How do you find the right mortgage strategy? You can't. You have to enlist the help of a professional who can create the strategy for you. Why is this? First, you don't know what interest rates are going to do in Canada. Second, you have have a complete understanding of current and future economic factors. And thirdly, you need to design a strategy that is individualized. For all of this, you need a professional mortgage consultant.

With the expertise of an experienced mortgage broker, the two of you can sit down and design the exact product that will work for you. You see, he has special training to know and understand each of the mortgage products on the market, and know how each one would apply in a given set of circumstances. In addition, he understands the economy in general and probable impact of interest rate trends over the projected life of your loan.

To completely understand interest rates would take a lifetime of professional study, but there are basically three interest rate situations and two rules that interest rates follow.
Situations:
Interest rates trend higher. (This was the situation from 1950 to 1980.)
Interest rates trend downwards. (This was the situation from 1982 to 2003.)
Interest rates stay in a narrow range. (This was the situation from 2003 to 2006.)
If you don't understand these trends and use the wrong strategy, you could end up paying as much as 20 times more in mortgage costs over the life of the 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 mortgage. 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 client. A professional such as this will look at each option and find the right one for his customer.

Here are the basic mortgage strategies:
*5 times 5-A fixed term five year mortgage, renewed 5 times.
*Long term-a fixed rate mortgage for 15, 20 or 25 years.
*Variable rate-a home loan with an interest rate that changes based on the Bank of Canada base rate.
*Smith Maneuver-the borrower can deduct mortgage interest from income tax.
*More retirement-the equity built up in a home is used to create retirement income.
*No down payment-calculate the cost of renting while saving for a down payment as compared to taking a larger loan.
*Less than perfect credit-use a loan to repair credit so a mortgage will be cheaper later.

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.

Your mortgage broker will explain each of these strategies and review if and how they would work in your own circumstances. He is also able to gauge the economic environment to help you make the right decision. If you want to choose the best mortgage strategy, make it your strategy to meet with a mortgage broker. Such a consultation costs nothing may end up saving you thousands.

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

Related Tags: mortgage, mortgage broker, home loan, mortgage rates, mortgage loan, mortgage calculator, hypothã¨que, prãªt hypothã©caire, courtier hypothã©caire, hypotheque, taux hypothecaire, mortgage strategie, financement hypothã©caire

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