Finance Articles

Home loan Strategy ? The ?5 by 5? strategy (renew 5 times a 5 years fixed mortgage pr?t hypothecaire)

Why the ?5 by 5? (5 ans fixe) mortgage strategy (renewing a fixed rated five year mortgage five times)? This strategy is a widespread mortgage strategy, even the most widespread in Canada, though not in the rest of the developed world. The fact is many people believe that this is the way all mortgages are structured, and that the only choice they have in a mortgage is to try to negotiate the best interest rate.

Why is the ?5 by 5? (terme 5 ans fixe) strategy so common? I presume it is probably because it has been the most customary (my parents?) and because of all of the advertising the big banks have done to promote it (to their own profot). (NOTE: if it is more expensive for us, it is more profitable for them!)

Description

So what is this popular strategy? As the name tells us, it is the method by which you take out a five year fixed rate home loan and then when that mortgage comes due, you renew with another five year fixed term mortgage. If you ask a lender about interest rates, they will give you the five year fixed term rate, without even asking what kind of mortgage you are looking for.

There are some advantages to the ?5 by 5? strategy, such as -obtainable at a wide range of lending institutions -lots of competition for your mortgage in this area -your mortgage payment does not vary for five years -it is a simple strategy -there is no change in interest rate until the end of the period

There are also disadvantages in this strategy. ? The rate changes at the end of the five year period, and you have no choice but to renew at this rate, even if it is higher ? There may be a big jump in your mortgage payments every five years ? You will face penalties if you pay the loan off earlier than the maturity date.

Is there a time when the ?5 by 5? strategy does pay? Yes, if you think that interest rates ? taux hypothecaire - will be less at the end of the five year period. However, the chances of interest rates being lower at the very time that you need to renew your loan would be very coincidental.

If you think interest rates are going to be higher when you need to renew, there is a better strategy for you to use, and that is the long term strategy. If you believe that rates will remain the same or even go lower, there is also a better approach for you and that is the variable strategy. If you are not sure whether rates will go up or come down, there is still another strategy that will work. (Get in touch with us and we will tell you all about it.)

If you are certain that you want to move in exactly 5 years, or if you need to renew in exactly 5 years, or if there are only 5 years left on the term of your mortgage, then the ?5 by 5? strategy is probably the best one for you.

Be sure that you do not choose your mortgage just because it is like everyone else?s home loan or because it is the only one your bank makes available to you. Make sure you examine all of the home loan options that exist, and that you work with a mortgage ? hypotheque - consultant who understands and can introduce the different choices to you. It?s your choice!

Gregory writes articles for http://www.informezvous.com/ - Pret hypothecaire. To have more information about mortgages, please visit one of his websites: http://www.informezvous.com.com

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