Getting pre-approved for a mortgage allows you to determine how much you qualify for when looking to purchase a home. It will outline the options available, what to expect in terms of cost and how much your monthly payment will be based on today’s interest rates.

Why?

We’ve seen two rate increases since March 30, 2010. With inflation “slightly firmer” than expected as stated by Mark Carney, Bank of Canada governor, there is an expectation the central bank rate will increase by 25 basis points June 1. Expect further increases during the July 20th and Sept 8th announcements. My question to you is “why wouldn’t you get pre-approved?” When you get pre-approved you not only get a clearer picture of what you can afford, what you can expect to pay and most importantly, you secure an interest rate with no obligation.

How?

You will need to speak with your bank. Go through the application process. It’s as simple as that. Many banks have mobile mortgage specialists to work around your schedule. The days of bankers working 9-3 have long since passed.

What does the term Rate Capping mean?

You will often hear this term when purchasing a pre-sale (pre-construction) development where occupancy is not for another 12 – 36 months.

Rate Capping simply put is an extended rate hold that matches the expected completion schedule of the project you’re buying.

Many of these new construction developments have mortgage packages / specialist on site. Banks such as TD Canada Trust will offer rate holds up to 36 months. In some cases other incentives such as free appraisal and cash back are included.

I like to think of it like an insurance policy for your property investment. You’ve secured a residence at today’s price, why not insure against future rate increases by taking advantage of the “Rate Capp”? If rates happen to be lower in 36 months when it is time to close on your new home you will still have access to their lower rate. However, if rates have gone up and you have not gone through this process then you will pay the higher rate. It makes no sense to risk having to pay more interest to the bank then necessary.

In order to take advantage it’s your responsibility to contact the mortgage specialist. The offer to hold rates only applies after approval. The rates are determined based on the approval date. Simply said, time is of the essence.

Happy Shopping!

Janis Gall