When shopping around for a new home, not all purchasers begin their search with seeking a pre-approval for mortgages. And when you don’t have a pre-approval, you are gambling when it comes to mortgage rates. With increasing interest rates, stricter mortgage regulations, and home offers turning into bidding wars, there has never been a more critical time to have a mortgage pre-approval before searching for a new home.
Increasing Interest Rates
Canadian interest rates are at their highest since 2008. On one hand, this means our economy is booming, but for home buyers, it can have negative effects on the affordability of your mortgage.
Without a pre-approval when you start shopping, your interest rate simply isn’t secure. We all know searching for a home can take time, so why would you want to add the risk of missing the lowest possible rate on your mortgage? If you have a pre-approval and mortgage rates go down, the lender will drop your rate to the current market before your mortgage funds.
With stricter and stricter mortgage regulations entering the mortgage industry over the last couple of years, many industry professionals are wondering: what regulation is coming next?
In October 2016, new regulations required all high-ratio mortgages to also be qualified at the Bank of Canada’s benchmark rate (currently at 5.14%, as of January 17, 2018). When this change first happened, it automatically disqualified some new home buyers. Although this change was drastic, any home purchaser who already had a pre-approval was not forced to re-qualify as long as their pre-approval hadn’t expired. In this case, a pre-approval saved some home buyers from being disqualified. Without a pre-approval, they may have had to go back to save up more money before purchasing.
In January 2018, the new B-20 regulations took effect, changing the qualifying rate for conventional mortgages (those with over 20% down payment or equity in a home). Again, when these changes came into effect, it allowed for any buyers/refinancers to still qualify at the older rate if they had a live commitment or purchased prior to their pre-approval expiring.
Being Pre-Approved Helps Your REALTOR®
When you start shopping for a home, it is essential to know how much you can afford. If you go shopping without a pre-approval, your real estate agent could be showing you properties outside your actual price range. As well, having a pre-approval gives you a clear idea of what your mortgage costs would be and allow you to better to manage what your budget will allow.
With the ongoing changes in the mortgage industry, being pre-approved before you shop is critical to securing the best rate. Before you start the search for your new property, reach out today to discuss your mortgage options.