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How does a pre-approval / rate hold work?
By Riki Unrau
With interest rates on the rise many people are hoping to lock in those low rates before they disappear for good. But what exactly does obtaining a pre-approval guarantee you? This is where many people are misinformed so let’s take a moment to set the record straight.
A mortgage pre-approval is a fairly simplistic process. Your mortgage broker will gather some basic information about your income and housing status and then obtain a certificate of pre-approval from the most appropriate lender. This certificate will guarantee a given interest rate for a set amount of days. The most common is a 90-day rate hold but we can go up to 120.
It is important to note that this certificate guarantees the rate not the actual mortgage. Obtaining a pre-approval does not mean you have been approved (head scratcher right?).
The full approval will not come until you have found a property you want to make an offer on. That is when we submit a full application to the lender so that they can underwrite the file and make sure it adheres to their guidelines. At that point, if you are approved, we can access that rate hold and apply it to the mortgage even if the prime rate has gone up. This is where the true value of a pre-approval comes into play.
Another important note is that your rate hold must be good until the actual closing date of the transaction. For example, let’s say you are granted a pre-approval that expires January 22. On January 2 you find the home of your dreams but the closing date isn’t until February 1. Since this date is after the rate hold expiry we will not be able to use it.
Pre-approvals/rate holds are very important in a market where rates are on the rise. No one knows what the rate will be in three months so why not set your mind at ease and make sure you are getting the best rate you possibly can while you can?
If you would like to discuss obtaining a pre-approval or have some questions about the process be sure to visit your favourite mortgage broker.
– Riki Unrau is a Mortgage Broker with Invis Williams and Associates, located at 828C Baker Street, Cranbrook, V1C 1A2 – 250-919-6402. For more try: rikiunrau.com
