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.

How do you find the right mortgage strategy? You can’t. You have to join forces with a professional who can create the strategy for you. Why is this? First, you don’t know what interest rates are going to do in Canada. Second, you have to fully understand current and future economic factors. And thirdly, you need to design a strategy that is individualized. For all of this, you need a professional mortgage specialist.

All of these issues, and more, will be taken into consideration when you sit down with your personal mortgage consultant. He has the proper training 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.

In addition to the way interest rates move, interest rates follow certain immutable 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.

The exact prediction of interest rates is next to 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 wise\a good idea to consider a 5 year fixed mortgage. But if you had done that over the recent historic period, it would have been a disaster.

Mortgage consultants (courtier hypothécaire) have a number of mortgage strategies that they structure and customize for each borrower. A professional such as this will look at each option and find the right one for his customer.

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)
• Repair 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.

That’s what a mortgage expert will do when he meets with a client. Each person’s individual requirements and dreams are discussed, and then any mortgage strategies that may be open to him are applied to his situation, under the present and anticipated economic conditions.  Not taking these steps with a professional mortgage broker (Intelligence Hypothécaire) can result in paying too much. A consultation is free, not having a consultation is very expensive.