Are you trying to break into the Canadian housing market? Finding the best interest rate can help save you thousands of dollars over the term of your mortgage.
So, what should you do when you find a good rate? Should you instantly commit, or keep looking for a better deal?
With a rate hold mortgage, you get the best of both worlds. You can hold onto the offer while you keep searching. Even if rates go up while you’re looking, the rate you’re offered won’t go up.
Here’s everything you need to know about a rate-hold on mortgages to help you decide if it’s right for you.
Key Points
- With a rate hold on a mortgage, your lender will hold your quoted mortgage rate for a limited time.
- A rate hold on a mortgage allows you to compare other mortgage offers without fear of losing your current offer.
- You can hold a rate for up to 130 days, depending on the lender.
- To get a rate hold on a mortgage, you’ll need to get pre-approved for a mortgage.
What Is A Rate Hold On A Mortgage?
A rate hold is basically a promise from a lender that they’ll hold a quoted mortgage rate for you for a certain amount of time. Getting a rate hold can protect you against rising rates and provide peace of mind that you won’t lose your offer.
This is especially important in a volatile market where rising rates could cost you a lot of money over the term of your mortgage.
How Rate Hold Works
To get a rate hold, you’ll need to get pre-approved for a mortgage. Once you’re pre-approved, the lender will make you an offer which includes the mortgage rate hold. Many lenders offer rate holds which typically range between 60 and 130 days.
For example, let’s say you’re pre-approved for a mortgage rate of 5% with a rate hold of 120 days. This means even if mortgage rates go up over the next few months, your offer of 5% will remain the same.
If rates go down, many lenders allow you to get the lower rate, this is known as a “float down.” However, some lenders have a “no float down” policy, which prevents them from dropping your rate if they go down.
While rate holds are usually free, some lenders may charge for this guarantee. You’ll want to ask if there’s a fee and, if there is, make sure it’s financially worth it before you agree to pay.
How Long Can You Lock In A Mortgage Rate In Canada?
While timeframes can vary between lenders, typical rate holds range between 60 and 130 days, but can go higher. As you can see in the following table, most of the big banks in Canada offer a rate hold of 120 days, and BMO offers 130 days.
| Lender | Rate Hold |
| BMO | 130 days |
| CIBC | 120 days |
| RBC | 120 days |
| Scotiabank | 120 days |
| TD | 120 days |
Can You Lock In A Variable Rate Mortgage?
You can’t lock in a variable rate mortgage like a fixed rate mortgage but, it is possible to get a “spread hold” guarantee.
This is when the lender guarantees a discount off the prime rate for a period of time. Like a fixed-rate mortgage, this is offered during the pre-approval period. For example, say today’s prime rate is 5% and the lender offers you a spread hold of 0.80%. In this case, your rate would be 5% – 0.80% = 4.2%. If rates rise to 5.5%, your new rate offer would be 5.5% – 0.80% = 4.7%
How To Secure A Rate Hold Mortgage In Canada
To secure a rate-hold mortgage, you’ll need to get pre-approved for a mortgage. Here’s a step-by-step overview of the pre-approval process.
Step 1. Find A Mortgage Lender
Decide where you want to get a mortgage from. Options include a bank, credit union, mortgage broker, or private mortgage company. Different lenders offer different rates and terms. It’s a good idea to compare multiple lenders to find the one that best fits your needs and financial situation.
Step 2. Prepare Your Documents
To get pre-approved for a mortgage, the lender will review your assets, income, and debt level. To do this, they may ask for the following documents:
- Identification (i.e. driver’s license or passport)
- Proof of income and employment (i.e. pay stubs, bank statements and/or employment letter)
- Proof you can afford a down payment and the closing costs (i.e. bank or investment statements)
- Information about your assets (i.e. investments, or physical assets such as a car)
- Information about your debtts (i.e. credit card balances, car loans, student loans, or child support payment)
Step 3. Submit Your Application
Once you’ve provided the necessary information, you can submit your application. If you’re pre-approved the lender will tell you the maximum mortgage you could qualify for, your estimated mortgage payments, and how long they’ll lock in your rate with a rate hold.
Learn more: Mortgage Affordability
Step 4. Find A Home
To take advantage of your rate hold, you have to close on the purchase of your home before your rate hold ends. If you don’t find a home within the allotted time, you may have to go through another pre-approval.
Benefits Of Rate Hold Mortgages In Canada
There are several benefits associated with a rate-hold mortgage, including:
Protection From Interest Rate Volatility
Small changes to your mortgage interest rate can have a big impact on how much you pay. Mortgage interest rates are largely influenced by the Bank of Canada’s (BOC) policy interest rate. The BOC adjusts the policy interest rate to control inflation. Lenders use this as a starting point to set their rates. In a volatile market, rates can go up and down. This is where a rate hold comes in handy.
Once you’ve locked in a rate hold, your rate is guaranteed for a certain amount of time, even if rates go up. This can provide you with financial security and the potential to save you a lot of money over your mortgage term.
No Obligation
When you secure a rate hold, you’re not obligated to follow through with the deal. A rate hold allows you to keep the guaranteed interest rate if you decide to move forward with a full mortgage application. You can still go and compare other lenders to find the rate and terms that are best for you.
Peace of Mind
If you find an interest rate that seems like a good deal, but you still want to check out other lenders, a rate hold allows you to do this. It’s like putting a great pair of jeans on hold at a store. You really like the fit, but you still want to check out a few more stores before committing. A rate hold works the same. It provides peace of mind that you can return to the original offer once you’ve had the chance to compare other options.
Learn more: Pre-Approved vs. Pre-Qualified
Drawbacks To Consider
While a rate hold offers many benefits, there are also a few drawbacks to consider, including:
- Limited timeframes. It’s possible that your rate hold might not last long enough for you to find the right home. In this case, you’ll have to go through the pre-approval process again.
- Fees. Some lenders may charge a fee for a rate hold. Ask questions during the pre-approval process, so you understand exactly what you’re being offered.
- No float down policy. Some lenders have what’s called a “no float-down” policy which means they won’t drop your rate hold even if rates go down. In such cases, you may need to go through the pre-approval process again or apply with a different lender.
If Your Financial Situation Changes, Will The Rate Hold Still Hold?
Even if you’re pre-approved for a mortgage, a lender can still refuse you. A pre-approval is not a guarantee. If your financial situation changes or your credit score drops between the time you were pre-approved and the time you submit your application, you can be denied a mortgage and, as a result, you’ll lose your rate hold.
Are You Interested In A Rate Hold?
Whether you’re looking to break into the Canadian housing market or you’re preparing to renew or refinance, a rate-hold mortgage offers many benefits. By locking in a rate, you can continue to search the market for the best deal with peace of mind. If the market shifts and interest rates go up, your rate is protected. With little downside, what do you have to lose?
