A rate hold is the length of time your interest rate is held for, it’s used to protect the borrower from rising interest rates.
If rates go up before your rate hold has expired, you are entitled to the original lower rate that was held for you. If they go up after your rate hold has expired, you are subject to the higher rate. If rates go down before or after your rate hold has expired, you can request the lower rate or move to a different lender.
There is a difference between a rate hold and a pre-approval. A rate hold is just that, a rate that is held for you for a certain period of time, but if the lender holding the rate does not approve you or the property, your rate hold is voided with that lender. A pre-approval involves a full analysis of the borrower, most importantly their income and credit. The lender then issues a pre-approval that comes with a rate hold, and the borrower can go house shopping. Be advised the property you choose is still subject to the lenders final acceptance.
If you have an offer on a property already or you are refinancing your home, the rate hold is the length of time you are eligible to receive the interest rate offered in your approval. If you do not close within that rate hold period, you may be subject to a higher rate. Of course, if the lenders rate goes down before you close, you can request the lower rate too. Most rate hold periods tend to fall under the below 3 categories;
- 30 day rate hold: these are considered ‘quick-close’ rates and could be further discounted than products with a longer rate hold. Read the fine print in your approval for these rates as they could be accompanied by additional clauses such as an increased payout penalty if you break the term early for any reason. Another restriction to watch out for under these low rate products is that some lenders will not allow you to break your mortgage term early unless you’re selling the property. The lender is basically forcing loyalty for a lower rate. This is not always the case, but it’s important to understand any ‘unique’ conditions that come with a quick close, and/or deeply discounted interest rate.
- 60-120 days: this is the most common rate hold period and you can usually expect traditional clauses and conditions with these products.
- 6-12 months: These longer rate holds are reserved for borrowers requiring a construction mortgage. Rates tend to be a bit higher in this category than the shorter rate hold products. Talk to your Mortgage Broker about making the most of a long rate hold and strategies to get the lowest rate when possession day finally rolls around.
As you can see from the above information, the term ‘rate hold’ is used in a few different contexts. If you’re unsure how a rate hold affects your specific situation, call Jackie to discuss! No cost, no obligation and 35 years of experience you can benefit from.