Rate Holds
Pre-Approval = Rate Hold
A Pre-Approval isn’t a Rate Hold
A Rate Hold isn’t a Pre-Approval
One of the most common misconceptions I hear is:
"I've got a Pre-Approval, so my rate is locked in."
Not necessarily.
What is a Pre-Approval?
A Pre-Approval is confirmation of the amount of mortgage you can borrow.
And it is executed to varying degrees of accuracy. You click some buttons online to generate your Pre-Approval - garbage in, garbage out.
A proper Pre-Approval involves reviewing income, employment, down payment, credit, existing debts, and the lenders specific qualification rules. You engage an expert and put yourself through the proper in-depth process - you will get an accurate Pre-Approval
What is a RATE HOLD?
A rate hold is an addition to a Pre-Approval
Think of it as an insurance policy against rising interest rates. A Rate Hold is an insurance policy — a worse case (rate) scenario protection — valid typically for 120 days.
If rates increase during that period, you still have access to the lower rate that was held for you.
If rates decrease, you can usually access the lower market rate instead.
Why Don't Rate Holds Offer the Lowest Rates?
Those lenders that do offer rate holds do NOT offer their best rates. Why? There are two main reasons.
1. Rate Holds Cost Lenders Money
Issuing a Rate Hold requires:
Staff and technology resources
Administration and processing
Reserving funds that may never be used
While those funds are reserved, the lender cannot deploy them elsewhere.
2. Mortgage Pricing Is Complex
Mortgage rates vary based on numerous factors, including:
Purchase price
Down payment size
Loan to value (LTV)
Whether the mortgage is insured, insurable, or uninsured
Property type
Amortization length
Because of this complexity, Rate Hold programs are generally simplified and don't always reflect the most competitive pricing available once a live mortgage application is submitted.
Why do I still obtain a Rate Hold then?……just in case!
When you have an Accepted Offer – there is zero obligation to use your Rate Hold – that is when you can consider all (20+) lenders.
‘Fun’ Fact: less than 5% of Rate Holds actualize and become Mortgages!!
The Bottom Line
A Pre-Approval tells you how much you may be able to borrow.
A Rate Hold helps protect you from rising interest rates while you shop.
They're both valuable tools—but they're not the same thing.
