How does a mortgage rate hold work?

What is a mortgage rate hold?

A mortgage rate hold refers to a feature of a mortgage pre-approval, which you apply for when shopping for a home. A rate hold isn't an automatic option with a pre-approval, but it can be requested.

Your pre-approval rate hold guarantees that a fixed or variable mortgage rate offered by a lender won't increase for a specific period, typically 120 days (see lender rate-hold periods below). 

What is a mortgage rate lock-in?

A mortgage rate lock-in is a feature of your lender's mortgage approval for a home purchase, renewal, or refinance.

But each mortgage process can come with its own set of rules for the rate lock-in, and may differ by lender or product.

How do you get a rate hold?

To hold your pre-approval rate with a lender, you'll need to submit a full mortgage application, which requires a credit check. A lender needs your details to assess how much home you can buy and the rate it will offer you for a hold.

You can apply for a mortgage pre-approval through an expert mortgage broker or directly with a lender.

How does your pre-approval rate hold work?

• Your rate can't increase during the hold period.
• If rates drop, you can ask about a lower rate (a broker can help).
• The hold is with one lender and usually for one rate type and term (e.g. 5-year fixed or variable).
• Some lenders may offer multiple terms, but with an added premium (slightly higher rates).
• Not all lenders offer a pre-approval and rate hold, but that doesn't mean you can't get a great rate.
• If you make an offer to buy a home during your hold, the rate can typically be applied to your mortgage application.

What benefits do you get from a rate hold?

• Protected if mortgage interest rates increase during that time (unless you need to reapply with a different lender based on revised financial details).
• If rates drop, you can ask for a new rate quote.
• Not worrying about rates when home shopping.
• Using an expert mortgage broker can provide confidence that you're getting your best deal, with a lender and product that matches your unique situation.

How does a rate hold impact your ability to access better rates?

Consider that a lender is offering a pre-approval mortgage rate that might be held for as long as 4 months while you secure a home purchase. So, will the lender really offer you the best rate possible? 

No, simply because your pre-approval rate needs to leave room for market fluctuations during that time (rates aren't the only thing that can affect a lender's bottom line). 

Plus, trying to pre-determine your best rate without a secured property to base it on is too risky (i.e. lenders don't like losing money).

To compete for your business, the lender is still likely to offer you a good rate for the hold, and you can negotiate later when your financial situation is confirmed in light of the home you want to buy.

If rates drop during your hold period, an expert broker can monitor the market on your behalf and help ensure your best mortgage savings scenario.

Are you dealing directly with a bank? Beware that you may need to ask (again and again) if they can offer a better rate.

Some non-bank lenders don't offer mortgage pre-approvals and rate holds.

Non-bank lenders typically only offer mortgage financing vs the vast array of big bank products, which helps keep their overhead as low as possible to offer (often) more competitive rates and more flexible mortgage features on approval than the big banks:

• You'll be quoted a competitive mortgage rate once you apply for a mortgage based on your home-purchase details.
• A rate lock-in is provided with your mortgage approval for a specific period before the mortgage is funded (average is 40 days).
• An expert broker will monitor the market and help ensure you receive the best rate as your process finalizes.

Why wouldn't you need a rate hold?

It seems counterintuitive not to request a rate hold during your home shopping phase. After all, if rates go higher while you're touring kitchens and mudrooms, it means you'll pay more during your first mortgage term.

However, if rates are in a downward trend or unlikely to increase significantly, a rate hold may not work in your favour. Not all lenders offer them, and requiring one may limit your pre-approval lender options (if you're using a trusted mortgage expert to shop around for you).

A rate hold can be a good idea if you (and your expert mortgage broker) think that rates may change substantially within the timeframe it might take to find a suitable home.

How does a rate lock-in work?

For a mortgage purchase. You now have a property, and your mortgage application is based on these details to finalize your finances and (ideally) approve your mortgage. Once you submit your mortgage application, your rate offer is typically locked in for up to 120 days (depending on the lender) to allow time for your deal to close. If your possession date is later, the lender may extend the lock-in period, though not always, depending on the market conditions.

For a renewal or refinance. A rate lock-in period for these mortgage processes can apply for a few purposes: 

1. Typically, a 120-day rate lock-in with a first renewal offer (i.e. not necessarily your best rate), or for a refinance or switch, which covers the renewal period
2. A short 'think about it' period (typically 2 to 30 days) if you're negotiating on a mortgage offer with your current lender, which encourages you to accept.
3. Once the offer is accepted, your rate is typically locked in until the completion of your process (to the maturity date, or a predetermined date if a renewal or refinance occurs mid-term).

What benefits do you get from a rate lock-in?

• Your rate with a lender is protected from increases while you make mortgage decisions.
• If rates drop, you may be able to negotiate a better rate (an expert mortgage broker can help ensure your best deal).
• Mortgage payment peace of mind once your mortgage is approved for a purchase, renewal, or refinance (may depend on closing date).

Does a rate lock-in give your best rate?

For your purchase, renewal, or refinance, a rate lock-in is based on a property (conditionally) secured by a purchase offer or one you already own. The rate offered by a lender at this point in your process, vs. a pre-approval rate hold, is likely close to your best rate.

However, that doesn't mean you don't have room to negotiate.

If rates drop, you may have some wiggle room up to a few weeks before your mortgage funds. Your best option here likely lies with an expert mortgage broker who monitors the market and advocates on your behalf to save you the most.

Break the ice with us, save more.

Freezing your rate doesn't necessarily mean you'll get your best rate. That's where your expert True North broker comes in.

Give us a shout or apply online, and a True North broker can help you quickly secure a pre-approval rate hold or lock-in with a lender that fits your needs, then keep an eye on the market to ensure you're not missing out on something better.

We've helped thousands of Canadians save more on their mortgage. But don't take our word for it, read through our (thousands) of 5-star client reviews here.

For your best mortgage experience, get expert advice (in your preferred language), real savings — and service that's anything but cold.

We can help you get better rates, anywhere you are in Canada. Apply with us online, over the phone, by email, or drop by a convenient True North store near you.