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Trying to get the lowest mortgage rate is great. Losing that rate, not so much.
That’s what can happen if you don’t have a long enough mortgage rate hold.
A rate hold is the length of time that the lender will lock in your quoted rate. Think of it as a “guarantee” of that rate, assuming you qualify for it.
Most lenders offer rate holds of 30, 45, 60, 90 or 120 days. BMO Bank of Montreal, for example, is an exception to the rule with its rate hold of 130 days. Desjardins sometimes offers up to 180 days.
Here’s a look at how big banks and other major lenders stack up in terms of the rate holds they offer mortgage clients:
Most people tend to think more is better.
While a longer rate hold seems like a better deal on the surface, not all borrowers need the maximum rate hold of 120 or 130 days.
The average Canadian closes their mortgage in just 45 days, roughly. So, for most, a maximum rate hold may offer peace of mind, but if you don’t need it, why pay for it?
That’s not to say a longer rate hold is rarely worthwhile. In a rising rate environment, which we expect to find ourselves in, in 2022, a longer rate hold can offer maximum protection, particularly for:
(A) people with far-off closing dates.
(B) pre-approved borrowers who haven’t found a house to buy (yet).
While a lender will guarantee a rate for the duration of its rate hold period, that shouldn’t be seen as a guarantee that you’ll be approved for the mortgage.
The lender must first verify your credit history, documentation and other financial details to ensure you can qualify for the loan. Despite having a rate hold, a lender can still refuse an application if the borrower can’t meet the minimum qualification requirements. It happens all the time. That’s why we recommend choosing a lender that “fully underwrites” your mortgage application if you’re worried about not qualifying.
Note: Full underwriting isn’t required to determine how much of a mortgage you qualify for, but it helps. Otherwise, you need to rely on a banker or mortgage broker’s word, and that’s often less reliable than a lender approval in writing.
The problem with pre-approvals (which are often referred to as rate holds) is that lenders rarely appraise the property until you have an unconditional purchase agreement. Many a mortgage approval has been cancelled because something negative turned up in the appraisal.
Here are a few points to keep in mind about rate holds: