Mortgage Rate Hold: Protecting Your Rate Before Closing
In a market where interest rates can fluctuate from week to week, a rate hold is an essential tool for any homebuyer or borrower approaching renewal. It allows you to lock in a favourable mortgage rate for a set period, protecting you against an unexpected increase before your transaction is finalized. Understanding how rate holds work and the strategies to use them to your advantage can save you thousands of dollars over the life of your loan.
How Rate Holds Work
A rate hold is a written guarantee from the lender stating that the agreed-upon mortgage rate will be honoured for a specific period, regardless of market rate movements. This period begins at the time the hold is confirmed and ends on the expected closing date of the transaction. The hold is obtained during the mortgage pre-approval or formal submission of the file to the lender. It generally covers a specific rate type (fixed or variable) for a determined term (1, 2, 3, 4, or 5 years).
- Rate Hold (Rate Lock)
- A formal commitment by a mortgage lender to guarantee a specific interest rate for a determined period (typically 60 to 120 days). The hold protects the borrower against rate increases occurring between the application and the closing of the transaction. It is generally offered at no charge and does not constitute a commitment from the borrower to the lender.
Hold Durations by Transaction Type
- Purchase of an existing property: 90 to 120 days is the norm. Some lenders offer up to 130 days to accommodate variable closing timelines.
- Purchase of a new or under-construction property: since construction timelines are unpredictable, the standard 120-day hold may be insufficient. Some specialized lenders offer extended holds, but the rate is often slightly higher to compensate for the risk.
- Mortgage renewal: 90 to 120 days before the maturity date of the current term. Lenders typically send a renewal offer 21 days before maturity, but a broker can lock in a rate much earlier.
- Refinancing: 30 to 90 days depending on the lender, as refinancing involves additional steps (appraisal, equity verification, notary).
Rate Hold Strategies to Maximize Your Savings
- Lock early in a rising-rate market: If economic indicators suggest rates will rise (high inflation, Bank of Canada rate hikes), lock in your rate as early as possible. The longer the hold, the more protection you have.
- Take advantage of the rate drop guarantee: Most lenders will adjust your locked rate downward if their rates decrease during the hold period. This means you get the best of both scenarios: protection against increases and the benefit of decreases.
- Use a broker for multiple holds: A mortgage broker can lock in rates with multiple lenders simultaneously. At closing, you choose the most advantageous offer considering the rate, conditions, and flexibilities of each lender.
- Monitor expiration dates: Ensure your expected closing date falls within the hold period. If a delay is foreseeable, request an extension of the hold or obtain a new hold before the current one expires.