How to choose the loan strategy that is best for you?

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How to choose the loan strategy that is best for you? - prêts hypothécaires - By: Gregory van Duyse, Posted on: 2007-09-11

You can save thousands, if not tens of thousands of dollars on a mortgage if you choose the right loan strategy (prêts hypothécaires). Even on a $100,000 mortgage, the savings can be considerable.
So the real question is what should I be doing in addition to looking at interest rates?

How do you choose the right loan strategy to suit your situation? That’s simple. Consult a mortgage broker (prêts hypothécaires) who is able to analyze all of the options available and make the right recommendation for you. Why do you need an expert for this?
- We don’t know what interest rates are going to do, go up, down or stay in a narrow range.
- We don’t know enough about economic situation and how it influences interest rates.
- Each borrower needs a strategy designed for him alone, since each of us has our own needs and long range plans.

In order to be able to address these issues, you have to have the experience and knowledge to be able to examine all of the options available. Only a experienced mortgage professional is able to do that.

To choose the right mortgage strategy you must:
• know the all of the features of available mortgage products;
• identify where you are in the interest rate cycle; and
• assess the probability of an increase or decrease in rates over the next 10-15 years.

The interest rate cycles.
There are essentially three scenarios and two fundamental rules to understand interest rates (all this could take up several volumes, but we’re going to keep it as simple as possible).

Scenarios:
1. Rates are generally increasing (1950-1980)
2. Rates are generally decreasing (1982-2003)
3. Rates are generally stable (2003-2006).

Each of these scenarios demands a particular strategy. It could be disastrous to adopt a strategy conceived for descending rates and then see them climb.

In order to understand and work with these trends, two rules of the economy need to be applied:

1. Interest rates typically follow the inflation rate. This means that if we see the CPI (Consumer Price Index) go up, we can expect an increase in interest rates.
2. Interest rates reflect the health of the economy. In a robust economy, interest rates will be higher because there is more demand for money, and when the economy is weaker, interest rates will be lower.

We cannot predict interest rates with any degree of accuracy, but we know that interest rates over the last thirty years were averaging 9.6%, while they are now around 5%. (pour un prêt hypothécaire)

There are a number of basic mortgage strategies available, and then permutations of each of them that yield us a variety of options. Picking the right strategy or combination of strategies is the most important thing in 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 strategies that a mortgage professional will work with are the following:
- 5 times 5 is a situation where a mortgage is renewed five times with a term of five years for each renewal.
- A long term mortgage has a fixed rate on a 15, 20 or 25 year mortgage.
- A variable rate mortgage has a rate that changes during the life of the loan, with the rate based on the base rate of the Bank of Canada.
- The Smith Maneuver is when the borrower (whether he is a salaried employee, or self employed) or can lower his personal income tax by the amount of interest paid on his own home.
- A retirement loan uses the equity in the home as additional income for retirement.
- A no down payment loan allows the borrower to borrow the full amount of the purchase price. To decide whether this is the right decision, you have to do the calculations to see whether saving up for the 5% down payment while paying rent is better than taking out a larger loan to buy a home sooner and avoid paying rent.
- A less than perfect credit loan means that the borrower uses the funds to improve his credit to get better interest rates in the long run.

A well qualified mortgage broker will look at all of these types of loans and, combining that information with the personal information of the borrower, devise the perfect strategy for the borrower - prêts hypothécaires. That is why getting the best loan strategy is so much more important than just getting the lowest interest rate on a loan.

So what should a borrower be doing? The only way you can be guaranteed to find the loan strategy that works for you is to contact a mortgage expert and work with him towards the perfect strategy for your situation. The consultation is free, but it may save big in the long run.

Article Source: http://higradesearch.com

Gregory is an Accredited Mortgage Professional (AMP). To get more information on mortgage loans - prêt hypothécaire, please visit: Informezvous.com - hypothèque

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