Mortgage Rate Guarantee | How Long Does It Last?

When we are seeking a pre-approval or have purchased a home, there is always uncertainty and nervous thoughts regarding mortgage rates. How long is my mortgage rate guarantee is a very typical question that we receive. We will de-mystify the thought process and help you better understand how to think. As a consumer, you will also learn how rate specials and exceptions are structured. Our goal is to be have mortgage clients be prepared during their home process.

Rate Volatility

In this volatile market, mortgage consumers are concerned not only with the Canadian economy but understanding the volatility of the rates. The question has been a steady theme and a common question in the last few months. Let’s explore the answer to this question.

If you have decided to take a variable rate product, then you are at the whim of the Bank of Canada overnight rate. Essentially, there is no mortgage rate guarantee in this case. Your rate moves with the Bank of Canada rate. Let’s look at an example:

Sara purchases a home on February 14, 2020 and she will close her transaction on May 7, 2020. Her rate is Prime – 0.50. On February 14, her rate was Prime – .50 or 3.95 -.50 = 3.45%. The rates have dropped since then. Her rate now is prime – 0.50 or 2.45 – 0.50 = 1.95%. Now that is rate volatility.

Pre-Approvals Hold Rates

When seeking a pre-approval, we try to select financial institutions that give us a 120-day rate guarantee. The thought process is rather simple: we cannot predict rates, the economy or as of today a financially calamity like a pandemic. Therefore, why not have the rate covered for the longest period of time to protect our mortgage rates. If mortgage rates go lower, the clients receive the better rates but if rates go higher after the preapproval, we have a ceiling and we have protected the client.

Purchases become the most interesting area for a mortgage rate guarantee since they have the greatest time variance. Most closings for home purchases are between 60 and 90 days. However, there is a file that we have now at Robert Floris’ Mortgage Architects that has a 6-month closing. Here is what we did. We began by explaining in detail that we cannot even look at mortgage rates until 120 days. Seems easy so far right? Well not so fast. Many mortgage companies do not guarantee rates beyond 90 days. Since we do not know where rates are going until the closing of the purchase, again we suggest to the client who (which financial institution) and why (due to the client’s specific circumstances) fits their needs. We again use this technique at 90 days. It must be remembered that rates can be volatile with a 120-day period. Within 45 to 60 days, many mortgage lenders have specials. It sounds a bit funny, like Walmart having specials on chicken, but banks have extra funds that they have not filled in their pipeline. If rates are trending low, this is an amazing time to get the best rate.

Conclusion

In conclusion, although a mortgage rate guarantee can last for 120 days, in a downward draft market, rates can differ positively for clients with patience. Understanding how lenders think and how they use rate exemptions help purchases and sometimes refinance mortgages get the best from the bank but most importantly for themselves and their families.

Robert Floris is a Mortgage Broker in Hamilton. His office is located at 651 Fennell Avenue East in Hamilton, Ontario. If you would like to speak with Robert, he can be reached at 905-574-9200 #215. Alternatively, you can contact Robert here.

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