Rate Holds vs Rate Locks: Understanding the Difference for Canadian Homebuyers

If you’re looking for a home, you may have heard the terms rate hold vs rate locks. While rate holds and rate locks are very similar, there are a couple of minor differences between the two.

Rate Hold:

A mortgage rate hold is essentially a guarantee by the financial institute that they will hold a negotiated rate while you put in an offer and close the deal on a new home purchase. Most rate holds are anywhere from 30 to 120 days. A few lenders will even offer rate holds for up to 130 days.

Rate holds are offered to new home buyers who are looking for a home and have pre-qualified for a mortgage. They are not given to current homebuyers who are looking to refinance or renew their existing mortgage.

Requesting a rate hold can be costly so if you are planning to get one, it’s better to ask for one that is a little longer than the expected time frame to purchase and close on a home. It costs between 0.025 to 0.05 percent of your home price for a rate hold. For example, if you are buying a home for $300,000, your rate hold will cost between $750 to $1,500.

If the rate hold expires before you finalize the sale, you will have to purchase another one to ensure the new rate is guaranteed.

Mortgage rate holds typically only apply to fixed-rate mortgages because the variable rates are always fluctuating.

One of the benefits of having a rate hold is that if the rates go up, your rate is guaranteed for the duration of the hold. However, if the rates go down, you can still get the lower rate because you’re not locked into the rate that the lender is holding.

Bank vs Mortgage Broker Rate Holds

If you are getting a rate hold from a bank, you are guaranteed that held rate for the specified time. However, if you go through a mortgage broker, will look for rate holds from more than one lending institute. Each institution can have a different rate hold period so you will need to know who the rate hold is with and for how long to ensure you don’t lose out on the rate.

Getting a rate hold isn’t a pre-approval nor does it guarantee that the lender will approve your mortgage so it’s best to get a pre-approved mortgage first. Once you have a pre-approved mortgage, you can sign up for automatic rate holds with your lender.

Rate Lock

A mortgage rate lock is similar to a rate hold, however with a rate lock, you are locked into the rate for the duration of the lock agreement. You can’t change your rate even if the market rate drops.

Rate locks can only be changed if the rate lock agreement expires, there is a change to the sale and a new agreement must be written or there is an issue with your credit.

Rate lock agreements last for a maximum of 120 days. They are great options if you know in advance that the interest rates are going to rise and want to secure a lower rate.

A mortgage rate lock can be applied to almost all mortgages, so if you are looking to buy a house, renew or refinance your mortgage, you can ask for a rate lock to reserve the rate at a certain level for a specified period while you look for and negotiate the best mortgage renewal rate possible.

Requesting a rate hold vs rate lock doesn’t guarantee your mortgage will be approved, but they can protect you from rising interest rates by locking in a set rate.