Mortgage Pre-Approval 101: What It Is, And How It Will Save You Money
Taking a mortgage out for your new home is a massive undertaking, and it’s not one that you’ll ever
enter into lightly. You want to protect yourself financially, while getting the best possible deal for the
real estate that you want to buy. This is why millions of prospective homeowners seek out pre-approval
for their mortgages. When you do this, and are approved, you can save thousands of dollars on interest
by locking in your rate ahead of time. Mortgage pre-approval lets you continue the process of shopping
around and preparing for this next big step in your life with a little less weight on your shoulders. A
Toronto based mortgage broker gave us more details.
What is Mortgage Pre-Approval?
Being pre-approved for your mortgage means that the lender has already observed your financial
qualifications and credit rating to decide what amount you qualify for with their institution. This
amount, as well as the interest rate attached to it, is locked in for a period of time around 90 days. This
gives you those 90 days to shop around other lenders or make a commitment.
If enacted within the allotted time permitted by the approving lender, the numbers are locked in for the
duration of your mortgage term-including your interest rate. To get final approval on a pre-approved
mortgage, two things must be done:
An appraisal is conducted on the property
The mortgage value is applied to the property
What are the Benefits of Mortgage Pre-Approval?
There’s a reason why so many Canadians seek out pre-approval on their mortgage. The short way to
explain it is: You save money! Here’s the slightly longer version:
Since the summer of 2017, the Bank of Canada’s rate has increased three times. This has left some
prospective homeowners with a great deal of anxiety in regard to getting the best rates possible. A pre-
approved mortgage locks in your interest rate, protecting it from sudden increases in the approximate
90 days that is outlined by the lender.
If rates end up falling during this time, the homeowner gets the benefit of the decreased rate. There is
What Happens when a Pre-Approved Mortgage Expires?
As we stated above, a pre-approved mortgage only locks in your payment and rates for a specified
period of time. If you do not act quickly enough, you could find yourself facing the expiration of this
approval quite suddenly. Lenders often do not inform prospective homeowners of this until it’s far too
late to do much about it.
That’s where a mortgage broker comes in. With their access to a variety of lenders and specialized
knowledge of the business, they are afforded notifications of when and how much these rates will be
increasing. They can then impart this information to their clients.
What is the Closing Process Like for a Pre-Approved Mortgage?
Sometime within the 90 (or however many) days allotted by the lender, you have to make the decision
of whether or not to close on this mortgage opportunity. Your pre-approved mortgage will not be
considered closed until an appraisal has been conducted and the value of the mortgage has been
applied to the property that you want to buy.
There is no reason not to try for a pre-approved mortgage. The sheer amount of money that it can save
you over the duration of your mortgage is reason enough to give it a shot!