What Is A Rate Hold?

Rate Hold Image

You have most likely heard lenders and borrowers talking about rate holds and rate locks, so what exactly does this term mean?

 

What is a rate hold?

 

A rate hold protects the borrower from rate fluctuations for the duration of the hold period. This guarantees the lender will offer the borrower a specific interest rate. Once this rate has been locked in, the lender will guarantee that rate for a certain period of time. A typical rate lock period could be 60, 90 or 120 days. This also means that if the market rate rises after the rate is held and the borrower will still receive the lower rate.

 

What happens if the rates go down during the rate hold time?

Not a problem! If the rates go down during the rate hold period we will automatically have you pre-approved at the new lower rate. The interest on your mortgage rate will reflect the lowest rate reached within the duration of the rate hold period. This is why getting pre-approved for your mortgage well in advance of purchasing a property is a good idea.

 

When can a rate be held?

 

Buyers must typically wait until a seller has accepted their offer for the purchase for a specific property. Other information is also needed before the rate can be locked, as the rate offered to an individual borrower depends on a variety of things including: borrower’s credit score, the loan-to-value ratio, the property type and locality.

 

How much does a rate hold cost?

 

Rate holds are always free for clients! This is true, as the rate lock is not associated with any type of fee.

 

What happens if a rate lock expires before closing?

Lenders are not able to extend a rate lock after a period of 120 days. Therefore once the time has lapsed, they will then have to pay the current rates. One of the big things is to make sure you have firm knowledge of when you’ll be able to close.

Secondary Home Mortgages For Secondary Homes

Secondary Home Mortgage
Secondary Homes are normally used for Commuters, Students and retirees, or as a university residence for children who would otherwise rent. In cases like these lenders assume that the buyers of the property will either use it themselves, or allow it to be used by family members on a rent-free basis.

 

It is pretty easy to get a mortgage for a vacation property, so if you are planning on purchasing a vacation home, make sure you are looking into something that resembles a four-seasons house. Make sure this property is easy to get to, winterized and supported by an adequate infrastructure. Make sure to check out our Cottage Mortgages Blog, If you plan on buying a cottage as your second home.

 

Secondary homes loan amounts are between $600,000 and  $700,000 and require at least a 5 % down payment on them. However if you plan on putting a 20% down payment, lenders can finance your purchase as a conventional mortgage.

 

One thing to keep in mind when looking for a second home, is that second home financing is a little riskier overall. This is that if the borrower can’t pay their bills, they will put that money towards their first home and not second property. The lender will look at several factors including: a good credit rating, steady employment, and a good debt-to-income ratio. One thing to keep in mind is that you have to qualify on personal income alone, as you can not rent out these properties and therefore cannot use rental property income.

 

Home refinancing with a cash out option will allow you to replace your old mortgage with a brand new one for the same property. This option will give you additional funds when the mortgage closes and can be a great choice when you are looking to change several terms on your mortgage.

 

However if you are happy with your current mortgage, a home equity line of credit or home equity loan is always an option. Second mortgages can still give you the extra cash you need while allowing you to borrow against the equity in your home. You must have at least 20 percent equity in their current home in order to qualify and this can also be used as a down payment on the second home.