Why Getting a Mortgage Pre-Approval Now Could Save You Thousands
Why Getting a Mortgage Pre-Approval Now Could Save You Thousands
Why Timing Is Everything
Mortgage rates are influenced by numerous factors, including global events and national policy decisions. With the recent political shifts, such as Donald Trump’s win in the U.S., the Canadian mortgage market is already reacting with rate hikes. Experts suggest these increases could continue as financial markets respond to economic uncertainty.
Waiting for rates to drop isn’t just risky—it’s a gamble. Here’s why:
Rates Are Climbing:
Economic trends indicate that rates are more likely to rise than fall in the short term. For example, fixed and variable rates recently increased by 0.3%, and further hikes are expected. Securing a pre-approval now locks in today’s rate for up to 120 days, protecting you from unexpected increases.Market Competition Will Skyrocket If Rates Fall:
If rates do drop, demand for housing will surge, creating intense competition. Historical data shows that when rates decline, bidding wars become the norm, driving up home prices significantly. A modest rate reduction of 1% could lead to a $50,000 increase in home prices due to increased demand.
The Risks of Waiting
Many homebuyers believe waiting for a better rate will save them money, but this strategy often backfires. Here’s what happens when you wait:
Higher Home Prices:
When rates drop, the monthly cost of mortgages decreases, making homes more affordable and increasing buyer demand. With more buyers competing for the same inventory, sellers can demand higher prices. A $640,000 home today could easily rise by 4-8% in a competitive market, adding $25,000-$50,000 to the purchase price.You can see the math breakdown below:
Calculation:
Current home price: $640,000
Price increase projection (4%-8%):
4% increase: $640,000 × 1.04 = $665,600 (increase of $25,600)
8% increase: $640,000 × 1.08 = $691,200 (increase of $51,200)
This means that by waiting for rates to drop, you could end up paying between $25,600 and $51,200 more for the same home, simply due to increased competition and higher demand.
Limited Inventory:
Increased demand shrinks available inventory, meaning you might have fewer homes to choose from. This can force buyers into making compromises or overbidding on properties they might not have considered otherwise.
The Benefits of Pre-Approval
A mortgage pre-approval provides more than just peace of mind—it’s a powerful tool that puts you in control of your home-buying journey.
Lock in Your Rate:
Pre-approval secures today’s rate for up to 120 days. If rates increase, you’re protected. If rates drop, you can still take advantage of the lower rate when you finalize your mortgage.Here’s the math breakdown:
Current interest rate: 5.19%
Projected lower rate: 4.19% (difference of 1%)
Example monthly mortgage payment: $3,000
Monthly savings: $266
Annual savings: $3,192
If rates drop by 1%, your monthly payment could decrease by about $266, saving you approximately $3,192 annually. However, this potential saving could be easily outweighed by higher home prices due to increased demand.
Stronger Negotiation Position:
Sellers favor buyers with pre-approvals because it demonstrates financial readiness. In a competitive market, this could give you the edge over other offers.No Obligation:
Pre-approval doesn’t commit you to purchasing a home. It simply provides you with flexibility and security, ensuring you’re ready to act when the time is right.
Objection Handling: Common Questions Answered
1. “What if rates go down after I get pre-approved?”
If rates drop, you can take advantage of the lower rate when you finalize your mortgage. Meanwhile, you’ve locked in today’s rate as a safety net against future increases.
2. “I’m not ready to buy yet.”
Pre-approval isn’t a commitment to buy—it’s a way to prepare. It ensures you’re ready to move quickly when you find the right home, without being rushed by rising rates or increasing competition.
3. “Isn’t the process complicated?”
Not at all! Pre-approval is quick and straightforward, requiring just a few documents like proof of income and a credit check. Most lenders can complete the process within 24 hours.
The Bottom Line: Why You Should Act Now
Delaying your mortgage pre-approval could mean higher rates, increased competition, and higher home prices. By acting now, you can secure your financial position and give yourself the flexibility to navigate the housing market confidently.
While waiting for a lower rate might save you around $3,192 annually, it could also mean paying $25,000 to $50,000 more for your home due to rising prices. Acting now allows you to lock in a rate and avoid the risk of being priced out by competition.
A small investment of time today could save you tens of thousands of dollars down the road. Don’t wait until the market forces your hand—be proactive, protect your budget, and set yourself up for success.
Take the first step toward homeownership by getting pre-approved today. Reach out to our team to start the process—it only takes 15 minutes!
BOTTOM LINE
By equipping yourself with a clear understanding of how current interest rate trends and market dynamics impact mortgage decisions—and leveraging the resources and expertise offered by Level Up Mortgages—buyers can confidently navigate the pre-approval process and secure their ideal property. Locking in today’s rates not only safeguards against future rate hikes but also positions you to act decisively in a competitive market. With expert guidance on navigating stress tests and alternative lending solutions, you’ll be well-prepared to make informed decisions that pave the way for a successful future in the Canadian real estate market.
Level Up Mortgages is a mortgage broker team focused on helping the self employed, new immigrants, non-residents, and investors, access best rate and alternative lending in Canada. We have been nominated for best up and coming broker in Canada in 2021 and have been on CTV News and various publications because of our education-first approach to helping you always stay a step ahead of the process. Reach out to us for access to our first-time buyer course or a mortgage strategy session.
See What You Qualify For Or Contact Paul To Get Your Pre-Approval.
Paul Davidescu (www.levelupmortgages.com)
Level Up Mortgages
604-809-3188
paul(at)levelupmortgages.com
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