Mohit Grover

How a Mortgage Pre-Approval Can Protect You from Rising Rates

Rising interest rates make mortgage pre-approvals much more relevant and meaningful.

Not only does a mortgage pre-approval give you the lender’s estimate of your borrowing power, but it also offers you an interest rate hold for up to 120 days in many cases. In times of steady or declining rates, you barely pay attention to your pre-approval rate. But these days, this rate hold can be a total game-changer.

If you are pre-approved for a fixed-rate mortgage, you may find yourself in a very fortunate situation when rates increase, because as long as your mortgage funds while your pre-approval is valid, your mortgage lender should honour your pre-approval rate.

Is it Worth Getting a Mortgage Pre-Approval for a Variable-Rate Mortgage?

Yes, it absolutely is worthwhile. The rate for a variable-rate mortgage is expressed as a discount to the lender’s prime rate – and that discount is what could change during your pre-approval period.

Today, it is reasonably easy to get a variable-rate mortgage at 1.30%. With the Bank of Canada’s prime rate sitting at 2.45%, your variable rate is expressed as prime minus 1.15% (a discount from prime of 150 percentage points).

Your pre-approval will lock in that large discount regardless of changes to the prime rate itself.

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