If you’ve been keeping an eye on mortgage rates in hopes of buying your first home or simply renewing your mortgage at a better rate, you may have come across the term ‘rate hold’ when speaking with various lenders. Many financial institutions offer rate holds, but if you aren’t familiar with them, you may not be sure exactly what they are. Today, we’d like to discuss what a rate hold is, why it’s a good thing for house hunters and homeowners alike, and how to get one with North Peace Savings.
What a rate hold is—and isn’t
A rate hold refers to a mortgage rate that is being offered to you for a set period of time. It is essentially a document wherein the lender promises a specific rate to the borrower until a clearly stated end date. For example, this document may guarantee a mortgage rate of 3.2% for 90 or 120 days, “holding” the rate regardless of changes to interest increases during that time frame. So, if interest rates go up and borrowers are being offered 4.1% interest, a person with a valid rate hold would still be able to obtain a mortgage at that 3.2% rate until the date stated in the document.
What a rate hold isn’t a mortgage application. Because it is simply a guarantee of an interest rate associated with a potential mortgage, there is no application process and no documentation is required from the potential borrower (for example: proof of income, credit history, etc.) If you later decide to enter into a mortgage agreement with the lender, the application process will begin. And if you don’t? The rate hold simply expires, with no obligation on either side.
Do I need a rate hold?
There are clear benefits to getting a rate hold—namely, you can secure a rate you’re comfortable with for several months—and because there is no obligation to contractually enter into a mortgage agreement at any point, there really is no downside. It’s a risk-free offer that carries no promise on your end. So, while a rate hold is not needed, we do recommend getting one, especially when interest rates are fluctuating or expected to rise.
At the beginning of the COVID-19 pandemic, key interest rates were lowered by the Bank of Canada in a move to help Canadians navigate the uncertainties and challenges of the pandemic. Two years later, with inflation rising fast, the Bank of Canada has been steadily increasing interest rates as a means to curb this trend. This means that mortgage rates are expected to increase alongside key interest rates in the weeks and months to come. It also means that variable mortgages are going to start costing borrowers more as their monthly payments are directly tied to the prime interest rate.
The bottom line? If you’re considering a new home purchase or need to renew your mortgage in the near future, it would be prudent to lock in a good rate now. Again, there is no downside or obligation associated with a rate hold, so getting one now is essentially a preventative measure for anyone expecting to sign a mortgage contract this year.
At North Peace Savings, we pride ourselves on providing the best advice to our members and would be happy to help you on your path to home ownership.
If you’re interested in learning more about current mortgage rates and potentially obtaining a rate hold certificate, please contact one of our Account Managers at 1-877-787-0361
North Peace Savings is a trade name of Interior Savings Credit Union.