If you are shopping for a home or have worked with a mortgage professional in the past, you have most likely heard of rate holds before. If not, it is something that every potential homeowner should be aware of. This is especially true for the application process as it has some great benefits for active shoppers.
If you are not familiar with the term, a ‘rate hold’ refers to locking in a specific mortgage rate for a limited period of time. This is offered through most lenders, assuming you are a potential client looking to purchase a home and need a mortgage. They are not eligible for individuals that are refinancing their mortgage or looking to transfer it to another lender.
If you qualify for a rate hold…
There are a few things you should know – from restrictions to benefits! The first and most important is that rate holds are typically only offered for a period of 90-120 days. So, once you have created your mortgage application with a broker and submitted it at the interest rate that best suits you, that rate will be protected for 90-120 days while you shop.
A rate hold is not a commitment. It does not force you to work with that lender, or the mortgage broker who submitted it. It also does not affect your future chances of receiving approval down the road. Instead, it simply guarantees that rate for you, if you find a home you want to purchase and sign the mortgage agreement before the rate hold is up.
BENEFITS
This can be truly beneficial in volatile markets or those with high competition. If you submit your application to a lender for a fixed rate of 5.19% on a five-year term, but while you are searching for your perfect home that rate moves up to 2.99%, the rate hold will protect you and allow you to still sign at 5.19%. This can mean huge savings!
For instance, if you are looking for a standard $500,000 mortgage (25 years amortization, fixed-rate, 5-year term), your monthly payments would be $2,962.34 at 5.19%. This would jump up to $3,107.48 per month at 5.69%. This is a difference of $145.14 per month or $1,741.86 annually, which can really add up on a 25-year mortgage!
Another benefit is that, if the rates go down, it does not stop you from taking advantage of the lower offer. Instead, it protects you from rate increases after you’ve determined your budget and are in the process of purchasing a home.
It is also important to note that, once the rate hold expires after 90-120 days, there is nothing stopping you from submitting another rate hold. It will just be subject to the interest rates as they stand on the day of submission. Current rate holds will bring you well into 2023 bringing you past the expected increase by the Bank of Canada.
REACH OUT TO A PROFESSIONAL
Find a professional who can help you better understand the current rates and benefits of a rate hold. In addition, they can help you find the best option to suit your needs thanks to their connections with hundreds of lenders! Why wait? Contact a DLC Mortgage Professional today.
By Julia Arvanitis
November 2022