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(Jan 12, 2024)

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The doors to homeownership often begin within the elusive world of mortgage pre-approvals. It’s a crucial step in the home-buying journey, offering the promise of a verified mortgage pre-approval, but also a secured interest rate that shields you from the unpredictable fluctuations of the market. However, there’s a hidden secret within this seemingly straightforward process that many homebuyers are unaware of – the interest rates in mortgage pre-approvals are not always as steadfast as they appear. Imagine securing an interest rate at 5.19% for the next four months, only to discover in the third month that market rates have dropped further to 4.99%. The surprising revelation? Your rate may not automatically adjust, leaving you stuck with the initially agreed-upon 5.19%. This isn’t a result of financial schemes or a ploy to maximize profits (although lenders do earn more on the higher interest rate); it’s more a consequence of file management intricacies within mortgage brokerages and banks. The complexity lies in whether your mortgage provider has the systems and processes in place to proactively manage rate adjustments. In this blog, we delve into the intricacies of why these adjustments are often overlooked, uncovering the surprising truth behind why your pre-approved interest rate may not reflect the current market reality.

Rate Hold Policies

Banks offer interest rate holds on all their terms, but for variable-rate mortgages, they reserve the discount rather than the rate. For instance, if your variable rate is Prime minus 0.90%, only the ‘minus 0.90%’ would be held, not the ‘Prime Rate’. Moreover, most banks restrict ‘blanket reserving’ the entire rate product table; you are allowed only one term/rate at a time, unless you’re utilizing a mortgage broker, who can secure multiple rate holds with various lenders. Rate hold periods can range from 30 to 120 days. It’s also important to note that a formal credit check is typically required for a rate hold. Here, the advantage lies with a mortgage broker, as opposed to a banker, because they can repeatedly submit applications to various lenders using the same, singular application. One application, one credit report, and access to endless lenders.

Float-Down Policies

Now, here’s where things get interesting. The key to rate adjustments lies within a built-in policy that lenders incorporate into their products, known as the rate float-down policy. This policy allows lenders to discontinue a current rate hold and reset it to the lower prevailing market rate if applicable. However, there’s a kicker. The mortgage provider, be it a broker or banker, needs to formally request it. That sounds easy enough, right? The task seems reasonable and simple, but the reality is that many bankers and brokers often lose track of their mortgage approval files and simply forget. Therefore, a better rate could slip by if your mortgage provider isn’t on the ball to recognize and act upon it! There’s one more thing to be aware of when it comes to interest rate float-down policies. While I’ve never heard of a lender that doesn’t allow for it, the diversity among lenders lies in the frequency of adjustments they permit. For instance, lender A could allow unlimited requests for float-down adjustments, whereas lender B might only allow one singular request. This is a critical guideline for your mortgage broker to be aware of to prevent them from using it up too early in the rate hold tenure, jeopardizing the opportunity to capitalize on further rate drops throughout your rate hold period.

Seek a Mortgage Broker Rather Than a Single-Brand Bank

If your mortgage pre-approval is with a bank, you’re missing out on all the possibilities the market has to offer! What if market rates fall, but the single-brand bank you’re currently tied up with maintains its rate? This type of circumstance is an easy fix with a mortgage broker as they would simply pivot and re-submit to the better lender. However, with a bank, there are no other options. Bank representatives are not brokers; they cannot tender your application to the market. All they have to offer you is what’s in their shareholders’ best interest! Optimize your experience and partner with a mortgage broker right from the beginning. Not only will you have access to a larger pool of lenders, but you’ll also be able to access them all at once without having to set foot in their branches!

Is Your Mortgage Broker Legit?

And lastly, ensure you choose a broker that truthfully works with multiple lenders – you might be surprised at how many don’t. In addition to working with multiple lenders, inquire about the type of file management system they utilize to stay on top of changing interest rates. Will your rate hold be monitored throughout its entire tenure, or will it be forgotten until its completion date?

At this point, you might be curious about my internal file management. My production team relies on an internal system called the RateWatch Dashboard. After completing a pre-approval, the applicant’s details are entered into the RateWatch Dashboard, essentially a calendar-style tracker equipped with rate float-down reminders and alarms. We check it countless times every day; it’s like a video game that you never want to stop playing. This system is a critical component of my operation, eliminating human error from what would otherwise be a task prone to such errors. Alongside the RateWatch Dashboard, we receive daily rate updates from our pool of 23 lenders. While one might assume that all applications are paired with lenders offering the best rates and terms, lately, an increasing number of applications are matching up with lenders that adjudicate for higher mortgage approval amounts rather than lower interest rates. The difference in rate is insignificant in many cases, but the variation does exist nonetheless.

DISCLAIMER: The interest rates cited in this article are accurate as of January 11, 2024. Rates are subject to change, and by the time you read this article, they may have increased or decreased. For the most current rate quotes, please contact Marko Gelo directly via email or text at 604-800-9593.

Want to discuss your rate hold? Call or text Marko Gelo right now at 604-800-9593, or Click Here to schedule a free, no-obligation phone call with Marko. You can also call Marko on WhatsApp.

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