Why The Rate You Hold, May Not Be The Rate You Receive.Have you ever purchased a Jeep and then all around you it seems EVERYONE is driving a jeep as well? The Baader-Meinhof phenomenon occurs when someone learns the meaning of a new word and then comes across this word everywhere they go. We see this in mortgages a lot: a client gets pre-approved for a mortgage with their pre-approval rate, suddenly everywhere they go they start seeing mortgage rates. (Online pop-ups, ads on the radio … even their neighbors’ dog-walker starts telling them about the exceptionally low rate they got on their mortgage!)
This can be confusing when potential buyers start comparing what is being advertised to what they have been pre-approved for because,
Pre-approval rates are usually priced 0.05% to 0.15% higher than current market rates.
(Not to mention if rates have increased from 2 years ago, we’re now not comparing apples to apples on the time line either). It is important to realize that pre-approval rates are not the “final” rate you’ll receive on your mortgage – think of it instead as an “insurance”. In the event that rates have increased sufficiently, from the time of the pre-approval to the time of purchase, lenders will honor the pre-approval rate no matter how much higher current rates are.
Mary Needamortgage Applies For a Mortgage and receives 3.19% pre-approval, but best rates are at 2.99% online and she’s feeling her broker didn’t’ get her the best rate. However this is just a pre-approval to protect her (insurance) should rates increase.
If At The Time Of Closing, the rate special on “real deals” is available at 2.99% or lower, she will get that lower rate. HOWEVER, should rates increase to say 3.49% – the pre approved rate of 3.19% that was secured will be available and save her from that increase.
SO, WHY IS THIS? First, lenders have, at a VERY large cost, to set aside all that money which isn’t cheap when only 25% of pre-approvals ever convert to an actual mortgage. The second reason is that when a pre-approval is sent to a mortgage lender, like First National Financial, they complete a FULL pre-approval and treat the application like a real file using sufficient man-power used to provide an approval to the client (some banks only do a brief pre-qualification, not having pulled/Reviewed Credit Bureaus, full income which can lead to disappointment when making an offer only to have been misled as to the actual amount you can afford)
Brokers have access to multiple lenders at all stages of the deal, are well versed in the lenders’ policies and products and can help navigate the different types of mortgages for your needs. During the pre-approval stage, ensure your broker is comparing multiple lenders as part of your education. When you have an accepted offer to purchase a home, your broker will then convert the pre-approval to a full-approval and “shop it” with multiple lenders to provide a mortgage solution that fits your lifestyle – taking into account factors such as, pre-payment privileges, online banking, tax account options, penalties and yes, even rate. Ensure your broker is also not just providing a rate since, as with most everything, you get what you pay for – if it seems too good to be true, ensure you understand what you have to GIVE UP to get what you want.
