Choose your mortgage strategy?
(If you have not read the article on How to beat the best rate? I recommend it before continuing)
We will now focus on one big question:
How to choose the right mortgage strategy ?
The easy answer: contact a mortgage consultant who specializes in creating customized strategies for its mortgage customers.
There are three good reasons:
- Nobody knows the future of interest rates in Canada.
- The right strategy must take into account the current economic climate and changing.
- It must be customized with your goals and your personal situation.
All this is not an easy job and it is best to consult mortgage professional who does this every day.
But do not stop there.
The answer is more difficult to analyze several factors to create a mortgage plan.
To choose the right mortgage strategy requires:
|know the strengths and weaknesses of the mortgage products available;
identify our current position in the cycle of interest rates, and
assess the likelihood of an increase or decrease in rates for the next 10-15 years.
Cycles of interest rates.
There are mainly three types of scenarios and 2 basic rules to understand interest rates (all this could take several books but we’ll keep our issue at the way).
- Rates are generally rising (1950-1980)
- Rates are generally declining (1982-2003)
- Rates are generally stable (2003-2006).
The two rules:
- Interest rates follow inflation. When the index of consumer prices rising rates rise, and so on.
- Interest rates are linked to the economic health of Canada and the United States. When it’s good interest rates rise and when it goes wrong rates down.
Nobody knows the future of interest rates. What we know is that the average interest rate for 30 years is 9.26%  and now they are approaching 5%.
Source of information: Statistics Canada, Table 176-0041 – Financial market statistics, as did UNLESS OTHERWISE Stated Wednesday, weekly (percent) (1); Chartered bank – conventional mortgage: 5 year
Each scenario requires a particular strategy. It could be disastrous to adopt a strategy designed to lower interest rates and see them go.
One might say: “I will not make a mistake, I’ll just take a 5-year mortgage fixed rate!
But it is also a strategy for 30-50 years and it has often been the worst and most expensive.
What are the different strategies?
There are several basic strategies, each may have several options and it is often advantageous to combine two strategies together to take advantage of the market.
All that to say it is better to consult a certified professional in the mortgage business.
Basic mortgage strategies:
|5 by 5 – repeat 5 times a mortgage with a fixed term of 5 years
Long-term – with a fixed rate mortgage for 15 years, 18 years or 25 years.
Floating rate – mortgage rate which varies with the base rate of the Bank of Canada.
Smith Manoeuvre and cash-flow dam – a strategy that allows, over time, to deduct interest paid on a private home of his personal taxes (employee and self-employed).
No down payment – This strategy is used to calculate the savings to buy right away without downpayment rather than rent an apartment in accumulating the down payment of at least 5%.
Less than perfect credit – helping to restore a good credit less for excellent rates in the near future.
By comparing the strategies that we can all enjoy a good mortgage planning and savings over the entire duration of your mortgage.
Remember that a good strategy is 21 times greater than simply negotiating the best interest rates.
Each strategy deserves some explanation must be customized and combined with your long-term and condition of the Canadian economy of the day.