Taking advantage of low interest rates (historically low, in Canada’s case) is possible with a mortgage pre-approval, and while it doesn’t provide you with a guarantee that you’ll be approved for a mortgage, it does give you the opportunity to lock in a low interest rate – if only for a matter of weeks. This means that even if rates go up in the future, you could still get that the great rate that’s available today.
Getting pre-approval can be advantageous for several reasons, and don’t forget that a good mortgage broker can help you with this process and give you advice about the entire mortgage process, too. Here’s more about locking in an historically low interest rate by getting a mortgage pre-approval:
What is a mortgage pre-approval?
This process is when a lender reviews all of your financial information - from debts and assets, to credit history and current income – and tells you the highest mortgage amount you’re able to borrow. Usually, they’ll give you an estimate of what your monthly mortgage payments will be, and an interest rate based upon the current rate.
Is it possible for a lender to change the rate after pre-approval?
Your interest rate is locked once you’ve been pre-approved, however, there are two instances in which your chosen lender is permitted to change the rate:
- Your financial circumstances have changed
- If base interest rates begin to fall
If your ability to pay back what you borrow becomes compromised by a change in your financial circumstances i.e., you lose your job or incur a fresh debt, then the lender has every right to raise the locked-in interest rate to cover the added risk that you now present to them.
In some circumstances, you may get an even lower interest rate than the one you locked in due to lower base interest rates, and lenders generally honor the new, lower rate.
Should you get pre-approved?
If buying a new home is part of your current agenda, then pre-approval could help you buy one and move in, far quicker. Generally free, once you get pre-approval from a lender, you’re not committed to taking out a mortgage with them and only them.
However, if buying a new home is something you’re contemplating but haven’t yet decided upon, then a mortgage pre-approval could be a waste of time. Remember that the lender you seek pre-approval from will run a check on your credit, and this could have a negative impact on your score.
What’s the difference between pre-qualification and pre-approval?
Simply put, pre-qualification is when a lender assesses your finances without a credit check, and tells you how much money they might choose to lend you, while pre-approval gets you a locked-in mortgage rate.
If you’re still undecided as to whether pre-approval to lock in a historically low interest rate is a smart move for you, talking to a local mortgage broker could help you make up your mind.