Is a Rate Hold Legit?
A rate hold allows you to secure a rate for a specific period of time. Rate holds can be quite important for prospective buyers, but there’s a lot of confusion around what they actually mean. In the Canadian mortgage market, there are two forms of rate holds – 1) Pre-approved rate holds and 2) Live rate holds.
Pre-approved Rate Hold
A pre-approval implies that you’re financially qualified to buy a house, but have not yet purchased one. While you’re shopping, you’ve secured a rate for a specific period of time to hedge against potential rate increases. Can you hold any rate you see? Absolutely not. In fact, many of the best rates out there are reserved for live deals only, meaning you have an accepted offer in play with a firm closing date. How long can you hold a rate? It depends on the lender, but typical periods range between 30 and 120 days. Why is your rate hold higher than market rates? For one, there are always live deal specials. Next, there’s a hedging cost for lenders, which can lead to slight rate premiums compared to their standard rates.
A potential problem with this, assuming rates haven’t changed, is that when you have a live deal, the higher rate will prevail. Can you roll your rate hold over every time it expires? No, it doesn’t quite work this way. It’s good from the date you initially apply until the end of the 30-120 day window. Can you hold a variable and fixed rate at the same time? Nope. One rate only. Is a rate hold worth it? It really depends on the current market conditions. When there’s upward pressure on rates, it makes sense. Otherwise, it’s not necessarily important. Do you need to pull credit to hold a rate? Every time.
Pre-approved rate holds are only applicable to purchase transactions.
Live Rate Hold
Live rate holds are straight forward. Again, a live deal implies that you have an accepted offer on a house with a firm closing date. Rates for live deals are always more attractive. At this point, you can choose your rate hold based on your transaction type and completion date and it will be good for the specified time period. Simple.