Make sure you choose the right mortgage strategy for you.  You will be amazedat  how much you will save if you concentrate on the right mortgage strategy (hypothèque), rather than concentrating on finding the lowest interest rate. Differences in interest rates are pennies compared to the tens of thousands of dollars you will save with the right mortgage strategy. (Read How to beat the best rate! to see how this works.)

What’s the correct mortgage strategy? Well, you probably can’t answer that question for yourself. What you can do is consult a mortgage broker who specializes in custom mortgage packages.  Why do you need to do this? The main reasons are:

• we don’t know where interest rates are going.
• economic conditions, both present and future have to be considered.
• A mortgage strategy is a complex, uniquely personalized approach that takes each borrower’s situation into account.

You see, a professional mortgage consultant has the ability to conduct an in-depth analysis of various options that may or may not suit you. To do this, he has been trained to understand all of the mortgage products (pret hypothécaire) available and to choose which one is right in a given situation. In addition, he knows where we are in an interest rate cycle and he can evaluate of  the probable movement of interest rates over the next ten to fifteen years.

It takes years of study to understand the movement of interest rates and there are economists who specialize in only that. Here is what the layman needs to understand about the basics of interest rates:

Interest rates follow an upward trend for a certain period of time, they follow a downward trend for a certain period of time, and the remain stable for a certain period of time. We have seen this trending in action from 1950 to 1980 when interest rates were rising, from 1982 to 2003, when interest rates were falling and from 2003 to 2006 when interest rates stayed in a fairly narrow range. If you are not familiar with how this works, you will end up paying too much for your total mortgage costs.

In addition to the way interest rates fluctuate, interest rates follow certain unchangeable laws.

1. Interest rates follow the inflation rate. That is, increases in the consumer price index will lead to increases in interest rates.
2. Interest rates change according to the state of the economy. In a weak economy, interest rates will be lower and in a strong economy, interest rates will be higher.

Predicting interest rates is just about impossible. Over the last thirty years interest rates have increased, averaging 9.25%, but recently have been decreasing and are now approaching 5%.  At this level, you may think about a fixed rate mortgage for five years. But that strategy has been the most costly over the past decades.

There are quite a few mortgage strategies that mortgage brokers have to choose from. An expert mortgage professional (courtier en hypothèque) can pick and choose from this mixed bag of strategies and design the perfect one for you.

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 mortgage 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 (Intelligence Hypothécaire) 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.

Analyzing each of these strategies on its own is important, and then the borrower’s individual circumstances must be taken into account, as well as the general economy of the country. Not using a professional mortgage (prêts hypothécaires) specialist to do these analyses can be dangerous and expensive.  The best decision you can make is to contact a mortgage specialist to assist you; this free consultation may be worth a fortune!