Rate Hold vs Pre-Approval - A Common Misconception
Michael Hallett • May 29, 2015
mis-con-cep-tion (noun)
- a view or opinion that is incorrect because it is based on faulty thinking or understanding; mistaken notion; an erroneous conception.
With not knowing how to start this particular blog post, I decided to look for some images that might summarize the topic best - What is the difference between a RATE HOLD and a PRE-APPROVAL?
I thought this picture 100% represented how these terms are perceived, you say one thing but you mean the opposite. For most people the term PRE-APPROVAL is more commonly used than the latter. The term RATE HOLD is generally only used in the broker/lender sphere.
Many years ago (seems like the ice age ago) one could place a phone call to their personal banker and lock in a mortgage, then it switched to only requiring a paystub maybe a bank stmt and T4s. Whereas now one requires their entire biography and proof of net worth followed by a blood sample... somewhat facetious, but there is more involved as lenders need to make an accurate risk assessment.
Times have changed and so should our line of thinking. Underwriting mortgages is not cheap and lenders have upfront costs that take years to recoup.
Rate Hold
These are generally automated where nobody even looks at the application. The system only analyzes basic criteria; beacon score, loan-to-value, name and birthdate. No documents are even reviewed. A rate hold is simply just that, a rate hold. It's just a certificate guaranteeing the stated rate for a stated period of time, usually to a maximum of 120 days. Rate holds are mostly utilized for borrowers who are going to purchase or refinance in the near future.
Pre-Approval
The pre-approval approach is generally a more detailed process, with all documents being reviewed, except for the subject property. The lender will have to approve the covenant based on the information provided such as employment, source of the down payment and credit history criteria. Approval of these three pillars is NOT a guarantee that the mortgage application will be approved. The lender still has to do it's due diligence on the fourth pillar (subject property) as it must still meet all the lenders guidelines and insurer if there is less than a 20% down payment.
The most common question you will hear during the purchase process is, ARE YOU PRE-APPROVED?
In my short 6 year tenure I have to worked with numerous clients that thought they were PRE-APPROVED by their 'bank.' But during the subject removal timeline found out that they were NOT pre-approved, all for various reasons. Instead there should be a series of questions asked:
- Have you consulted with your Mortgage Expert?
- If so, when was the last time you had a conversation with her/him?
- Is there a rate hold or pre-approval in place? Do you understand the difference(s)?
- Have you sent her/him your complete package of documents that was requested?
- Are there any changes to employment, credit, the down payment or the purchase price?
- Have you discussed the 'plan' for this property? This will determine the term and mortgage product chosen.
- ...and much more...
As you can see there is much more to consider than just, ARE YOU PRE-APPROVED?
No one mortgage is exactly the same as someone else's. The mortgage process is a complex labyrinth of puzzles pieces that have to fit together perfectly. Note that the puzzle pieces are constantly changing in this industry.
Due to the steep underwriting costs of each mortgage application most lenders are electing to follow the RATE HOLD process. By analyzing a complete 4 Pillar mortgage application package (credit, employment, down payment and subject property) the lender is able to maximize dollars spent to acquire a new client. Navigating the RATE HOLD/PRE-APPROVAL process should be left up to your trusted Mortgage Expert.
The best PRE-APPROVAL is the one that comes from your Mortgage Expert because they can analyze and do a pre-underwrite even before doing a RATE HOLD. With their expert advice you can construct a strategy that is tailored to your specifically to your mortgage financing scenario.
If you have any questions, please don't hesitate to contact me anytime!
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One of the most common questions, “how long does it take to get pre-qualified?” My response, “how fast can you provide the information I need.”
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Spotted a ski-bunny today @kirstinjhallett so I trapped ‘er. 📸 credit @troy.hartley
Aidan leading the pack up the Lemming Line in seek of fine fresh powder.
Beautiful British Columbia! A cold winter day at its finest.
Aidan and I braved the -19C temperature and windy conditions for the boot to knee deep turns...it was a no-brainer.
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Canadian tuxedo.
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Mortgage Registration 101: What You Need to Know About Standard vs. Collateral Charges When you’re setting up a mortgage, it’s easy to focus on the rate and monthly payment—but what about how your mortgage is registered? Most borrowers don’t realize this, but there are two common ways your lender can register your mortgage: as a standard charge or a collateral charge . And that choice can affect your flexibility, future borrowing power, and even your ability to switch lenders. Let’s break down what each option means—without the legal jargon. What Is a Standard Charge Mortgage? Think of this as the “traditional” mortgage. With a standard charge, your lender registers exactly what you’ve borrowed on the property title. Nothing more. Nothing hidden. Just the principal amount of your mortgage. Here’s why that matters: When your mortgage term is up, you can usually switch to another lender easily —often without legal fees, as long as your terms stay the same. If you want to borrow more money down the line (for example, for renovations or debt consolidation), you’ll need to requalify and break your current mortgage , which can come with penalties and legal costs. It’s straightforward, transparent, and offers more freedom to shop around at renewal time. What Is a Collateral Charge Mortgage? This is a more flexible—but also more complex—type of mortgage registration. Instead of registering just the amount you borrow, a collateral charge mortgage registers for a higher amount , often up to 100%–125% of your home’s value . Why? To allow you to borrow additional funds in the future without redoing your mortgage. Here’s the upside: If your home’s value goes up or you need access to funds, a collateral charge mortgage may let you re-borrow more easily (if you qualify). It can bundle other credit products—like a line of credit or personal loan—into one master agreement. But there are trade-offs: You can’t switch lenders at renewal without hiring a lawyer and paying legal fees to discharge the mortgage. It may limit your ability to get a second mortgage with another lender because the original lender is registered for a higher amount than you actually owe. Which One Should You Choose? The answer depends on what matters more to you: flexibility in future borrowing , or freedom to shop around for better rates at renewal. Why Talk to a Mortgage Broker? This kind of decision shouldn’t be made by default—or by what a single lender offers. An independent mortgage professional can help you: Understand how your mortgage is registered (most people never ask!) Compare lenders that offer both options Make sure your mortgage aligns with your future goals—not just today’s needs We look at your full financial picture and explain the fine print so you can move forward with confidence—not surprises. Have questions? Let’s talk. Whether you’re renewing, refinancing, or buying for the first time, I’m here to help you make smart, informed choices about your mortgage. No pressure—just answers.
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