If you are asking yourself how to get the best interest rate (taux hypothécaire) on your mortgage, you are asking the wrong question. (For more about that, read How to beat the best rate!).  What you should be asking is how do I choose the right mortgage strategy for my particular needs.

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.

All of these issues, and more, will be taken into consideration when you sit down with your personal mortgage consultant. He has been trained to understand what affects interest rates, which mortgage products (prets hypothecaires) are available as well as current economic conditions and, most importantly, he has been trained to use this knowledge as it applies to each client’s given status.

Thousands of papers and  hundreds of books have been written about the movement of interest rates. But for a basic understanding you need to know the three scenarios that interest rates can take and the two rules that interest rates follow.

• Scenario One: Interest rates rise, as they did from 1950 to 1980.
• Scenario Two: Interest rates decline, as they did from 1982 to 2003.
• Scenario Three: Interest rates remain stable, as they have from 2003 to 2006.

To work with these trends is important, since, if you use the wrong mortgage strategy (for example one designed for falling rates, and then rates go up), you will be paying way too much for your mortgage.

Interest rates follow two rules, one, that interest rates are indicative 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.)

The exact prediction of interest rates is almost impossible. We have seen interest rates increase over the last thirty years, with the average rate being 9.25%.  Today, however, it is at about 5%. Perhaps at this interest rate level, you think it would be wisea good idea to consider a 5 year fixed mortgage. But if you had done that over the prior historic period, it would have been a disaster.

Which strategies do professional mortgage consultants (courtier hypothecaire) look at? There are a number of basic strategies, and an informed mortgage broker will consider any of them, and even design a customized one that is a combination of two or more.

The basic mortgage strategies are:

• A five year fixed term loan, renewed five times (5 times 5)
• A 15, 20 or 25 year fixed rate mortgage (Long term).
• A mortgage with an interest rate that varies, based on the Bank of Canada base rate. (Variable rate)
• Deduct interest paid on the mortgage from personal income tax (Smith Maneuver)
• Use the equity in the home to add to retirement income. (More retirement)
• Calculate the difference between saving for a 5% down payment while paying rent and taking out a larger loan and avoiding rent during that period.(No down payment)
• Fix credit using a mortgage in order to establish better credit later on. (Less than perfect credit)

The secret is to find the right strategy or mix of strategies for the client. In doing so, a mortgage broker (Intelligence Hypothécaire) can save a client a lot on the cost of the mortgage.

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 broker to assist you; this free consultation may be worth a fortune!