| Make sure you choose the right home loan strategy | | | | interest rates, since the demand for money will go |
| for you. You will be amazedat how much you will | | | | down. It is also important to understand the rules of |
| save if you concentrate on the right mortgage | | | | interest rates. Interest rates follow two rules, one, that |
| strategy, rather than concentrating on finding the | | | | interest rates are reflections of the inflation rate, and |
| lowest interest rate. Differences in interest rates are | | | | two, that interest rates are closely linked to the |
| peanuts compared to the tens of thousands of dollars | | | | economic performance of a country. What does this |
| you will save with the right mortgage strategy. (Read | | | | mean? If the inflation rate(the consumer price index) |
| How to beat the best rate! to see how this works.) | | | | goes up, rates will go up, if the economy is strong, |
| How do you find the right mortgage strategy? You | | | | interest rates will go up. (Of course, the opposites are |
| can’t. You have to enlist the help of a | | | | also true.) |
| professional who can create the strategy for you. | | | | The exact prediction of interest rates is next to |
| Why is this? First, you don’t know what interest | | | | impossible. We have seen interest rates increase over |
| rates are going to do in Canada. Second, you have to | | | | the last thirty years, with the average rate being |
| fully understand current and future economic factors. | | | | 9.25%. Today, however, it is at about 5%. Perhaps at |
| And thirdly, you need to design a strategy that is | | | | this interest rate level, you think it would be wisea good |
| individualized. For all of this, you need a professional | | | | idea to consider a 5 year fixed mortgage. But if you |
| mortgage specialist. | | | | had done that over the recent historic period, it would |
| You see, a professional mortgage consultant has the | | | | have been a disaster. |
| ability to conduct an in-depth analysis of the many | | | | Mortgage brokers have a number of mortgage |
| options that may or may not suit you. To do this, he | | | | strategies that they structure and customize for each |
| has been trained in understanding all of the mortgage | | | | borrower. A professional such as this will look at each |
| products available and to choose which one is right in | | | | option and find the right one for his customer. |
| a given situation. In addition, he knows where we are in | | | | Here are the basic mortgage strategies: |
| an interest rate cycle and he can evaluate of the | | | | *5 times 5-A fixed term five year mortgage, renewed |
| probable movement of interest rates over the next | | | | 5 times. |
| ten to fifteen years. | | | | *Long term-a fixed rate mortgage for 15, 20 or 25 |
| Thousands of papers and hundreds of books have | | | | years. |
| been written about the movement of interest rates. | | | | *Variable rate-a mortgage with an interest rate that |
| But for a basic understanding you need to know the | | | | changes based on the Bank of Canada base rate. |
| three scenarios that interest rates can take and the | | | | *Smith Maneuver-the borrower can deduct mortgage |
| two rules that interest rates follow. | | | | interest from income tax. |
| Scenario One: Interest rates rise, as they did from 1950 | | | | *More retirement-the equity built up in a home is used |
| to 1980. | | | | to create retirement income. |
| Scenario Two: Interest rates decline, as they did from | | | | *No down payment-calculate the cost of renting while |
| 1982 to 2003. | | | | saving for a down payment as compared to taking a |
| Scenario Three: Interest rates remain stable, as they | | | | larger loan. |
| have from 2003 to 2006. | | | | *Less than perfect credit-use a loan to repair credit so |
| To work with these trends is important, since, if you | | | | a mortgage will be cheaper later. |
| use the wrong mortgage strategy (for example one | | | | Using the correct one of these strategies in each |
| designed for falling rates, and then rates go up), you will | | | | borrower’s case is what it is all about. Using the |
| be paying way too much for your home loan. | | | | right strategy is 21 times more important than getting a |
| Next, you have to understand the rules of interest | | | | better interest rate. |
| rates: | | | | Your mortgage broker will explain each of these |
| Interest rates reflect inflation. If there is an increase in | | | | strategies and review if and how they would work in |
| the consumer price index, interest rates should | | | | your own circumstances. He is also able to gauge the |
| increase. | | | | economic environment to help you make the right |
| Interest rates are tied to a country’s economic | | | | decision. If you want to choose the best mortgage |
| performance. A strong economy will mean increased | | | | strategy, make it your strategy to meet with a |
| interest rates, since there is a higher demand for | | | | mortgage broker. A meeting that costs nothing may |
| money, and a weaker economy will mean decreased | | | | end up saving you thousands. |