House hunters often wonder “Should I lock in my mortgage rate” in Canada, and the answer is generally yes. Locking in your rate during the pre-approval stage allows you to continue the search for the perfect property without worrying that you’ll end up with a sub-par interest rate at closing time. And locking in the rate during your mortgage term will provide consistency and, possibly, a sense of reassurance.
Canadians have been facing rising interest rates for a while now, adding cost and stress for many house hunters. But locking in a rate during the pre-approval process can provide significant peace of mind for the length of the lock term – which can go up to 130 days if you use the right lender.
Of course, you may still have questions about whether this is the right move for you. Let’s take a look at the ins and outs of this process so you can make an educated decision.
What does it even mean to lock in a mortgage rate?
“Locking in” your mortgage – sometimes referred to as a rate hold or rate lock – can mean 2 different things. It can be a reference to how your lender locks in a mortgage rate for you during the pre-approval stage, or it can mean that you’ve switched from a variable to a fixed mortgage rate.
Let’s take a look at what both of these scenarios entail.
Locking in your mortgage rate during the pre-approval stage
Mortgage pre-approval happens in the early stages of your property search when you’re offered an estimate of how much money you can borrow. The lender tells you the approved mortgage amount, the specific interest rate, and how long this particular offer will last. It protects you, the borrower, from losing out if rates go up during the time period between your initial approval and the date of closing.
For example, if you’re just beginning to scout out the housing market and look for a new home but you’re worried about mortgage rates going up, you can approach a mortgage broker or lender and lock in the current rate. This way, you’ll have peace of mind knowing that your rate won’t change, so you can take some time to find the right property.
With a few exceptions, most Canadian lenders will offer to lock in your rate for anywhere between 30 and 120 days. The average person, though, closes their mortgage in about 45 days, so a longer hold period isn’t always necessary.
Converting your variable mortgage rate to a fixed mortgage rate
You may also encounter the concept of “locking in” when you’re trying to decide between a fixed rate vs. variable rate mortgage. The phrase “lock in your rate” is sometimes used in reference to converting your variable rate to a fixed rate, during or in between mortgage terms.
If you’re hoping to switch from a variable mortgage rate to a fixed mortgage rate during your mortgage term, you may have to pay a penalty and renegotiate your terms. This penalty is usually 3 months of interest.
You may also be able avoid this if you have a specific type of mortgage: a convertible mortgage. A convertible mortgage is one that allows you to change the type of mortgage you have during its term. This includes switching between an open and closed mortgage, or from a variable rate to a fixed rate – as long as the switch is requested before the end of the term.
Pros and cons of locking in your mortgage rate
There are, of course, pros and cons of locking in your mortgage rate – and this applies to both situations, whether you’re in the pre-approval stage or considering locking in with a fixed rate instead of your current variable rate mortgage.
Upsides and downsides during the pre-approval stage
Here are what we consider to be the most pressing pros and cons of locking in during this phase:
Pros
- Protection from interest rate increases.
- Peace of mind during the house hunting process.
- You can often choose from several term lengths, to suit your needs.
- Doesn’t require a commitment to one particular lender.
Cons
- Possible inability to take advantage of rate drops.
- Can offer a false sense of security that you’ll also be approved for the mortgage itself.
- Mortgage refinances and renewals may receive shorter term lengths.
- Can feel as though you’re tied to one specific lender.
Most often, locking in a mortgage rate is a good thing as it protects you from rising rates. Yes, it’s true that rates could fall instead, but lenders are usually forgiving in situations like this. Using a “float down,” you may be able to lock in the lower rate instead.
This isn’t always the case, which is why we’ve listed it as a “con” above. Consulting with a mortgage broker is one way that you can avoid this kind of scenario, as they’ll be able to point you toward the more forgiving lenders.
Upsides and downsides during your mortgage term
Now, let’s consider a few benefits and downsides of locking in with a fixed rate instead of a variable:
Pros
- Can take advantage of lower rates.
- Rate stability can provide peace of mind, knowing that rates won’t drastically increase.
- Consistent monthly payment amounts.
- No credit check or legal consultation required, plus no fees or penalties are charged.
Cons
- Your lender isn’t guaranteed to offer you the most competitive rate.
- Usually means committing to a new term, which can go beyond your existing term.
- Can be more difficult and expensive to break the mortgage later, if required.
- Usually requires a convertible mortgage, which may not be as available as a standard fixed or variable rate mortgage.
- May be subject to penalty fees (usually 3 months of interest).
- Fixed rates tend to be more expensive over the long run.
Lately, mortgage rates in Canada have been rising at a steady clip, reaching heights we haven’t seen in years. This doesn’t mean they will continue to rise, though. In fact, the Toronto Star reported in January that mortgage rates will hold fairly steady throughout 2023, possibly going down sometime near the end of the year or in early 2024. (You can read the entire article here: “Mortgage rates will likely peak this week, economists say.”)
Still, you’ll want to do your due diligence and research what experts are saying about how interest rates may fluctuate in the future, how these changes could affect your variable rate, and whether locking in a fixed rate is the right financial decision for you.
How to lock in your mortgage rate in the pre-approval stage
To discuss how to lock in your mortgage rate, we first have to discuss what a mortgage pre-approval is – a quick method for both you and the lender to determine the mortgage amount that you’ll qualify for.
Of course, the lender will need to assess your situation before letting you know how much you can borrow. Here’s a list of information your mortgage lender will need before issuing a pre-approval, according to the federal government’s page on “Getting preapproved for a mortgage“:
- personal identification,
- proof of employment,
- proof/assurance that you have a down payment and can cover closing costs,
- information about your assets (of all kinds),
- information about your debts and/or financial obligations, and
- the amount and proof of income.
Once you’ve provided the necessary details and documents, the lender will tell you the maximum amount of mortgage you qualify for, what your interest rate will be, and their estimate of what your monthly payment will be.
And now that you know what kind of rate the lender is offering, you can choose whether or not to accept and lock it in.
How long a rate lock period lasts
Each mortgage lender has their own term limits for locking in a mortgage during pre-approval. They can be for as few as 30 days, but most of the big banks in Canada provide at least 90 days, usually more.
Here’s a look at the term rates for a few of Canada’s biggest and most popular lenders:
| Bank | Maximum rate lock term |
|---|---|
| BMO | 130 |
| CIBC | 120 |
| Laurentian | 120 |
| National Bank | 90 |
| Neo Financial | 120 |
| Nesto | 120 |
| RBC | 120 |
| Scotiabank | 130 |
| Simplii Financial | 120 |
| TD | 120 |
BMO and Scotiabank share the spot for the longest lock rate terms, and National Bank is far behind at only 90 days. However, as we mentioned before, it typically only takes 45 days to close on a mortgage in Canada.
If you’re interested in getting as much time as possible, you can learn more about BMO’s mortgage options here:
- 1 year: 7.34%
- 2 year: 6.99%
- 3 year: 6.54%
- 4 year: 6.34%
- 5 year: 6.49%
- 5 year (smart fixed): 6.39%
- 6 year: 6.59%
- 7 year: 6.69%
- 10 year: 7.19%
- 10 year (smart fixed): 7.09%
With BMO mortgages, you get access to a full lineup of mortgages. Wheter you want fixed or variable rates, or an open or closed mortgage, BMO has plenty of different options for you to consider. Plus BMO offers a long 130 day rate guarantee.
- Reputation of a big bank
- One of the longest rate guarantees in Canada
- Get pre-approved online
- Average (or slightly above average) rates
- Limited time offers with no specified end date
- Smart fixed rates available
Some lenders let you lock in your mortgage rate for longer
While BMO and Scotiabank provide the longest rate lock terms on paper, there are a few ways that a lender may be able to give you a longer term than what’s advertised.
RBC has a special construction mortgage for those who are building their own home rather than buying a house. The mortgage specialists in this department can help secure you a longer rate lock term during the pre-approval process, even up to as long as five years. Unsurprisingly, you’ll have to pay a premium for this convenience, but it can certainly be worth it in the long run.
There may be other Canadian lenders that are able to do this, but we haven’t yet been able to find any information about them.
You can read more about RBC’s construction mortgage on their page: “Building your own house.”
How much a rate lock costs
In most cases, you don’t have to pay anything to get pre-approved for a mortgage, and you don’t have to pay anything to get a rate lock put in place.
Even if you’re working with a mortgage broker, they won’t charge you for providing you information on a rate lock, or for any other of their services. The lender typically covers the broker’s fees.
But as mentioned, if you do end up getting one of RBC’s builder mortgages and lock in your rate for a longer period, there will be a small premium applied to the rate. One case held a fixed rate of 2.83% with RBC for a year and paid a 0.05% premium for it. That means the rate ended up being 2.87% in the end, which was still much lower than the standard 5.5% rates RBC was charging after the year was up.
What to do if interest rates fall after your rate lock
If interest rates fall once you’ve already locked in your rate for pre-approval, many lenders will allow you to choose the lower rate. This is called a “float down” and is typically a one-time thing – if rates go down again after you’ve taken advantage of a float down, you won’t be offered another chance to change your rate.
If you’re worried a situation like this might occur, make a point during the pre-approval process to ensure a float-down option is included. There will be fees attached, although you won’t have to pay them until the mortgage closes, so be sure that your pre-approval agreement is upfront about what those fees are. You don’t want to be surprised by a fee you can’t afford.
However, once you’ve switched from a variable to a fixed rate, you’re stuck with it. If the rates go down even further, the only way you can benefit from that is if you refinance your mortgage.
Are you thinking of locking in your mortgage rate?
Locking in a mortgage rate isn’t always as simple a decision or process as many people think it is. As with every step of the mortgage and property buying process, you’ll want to do your homework and be as prepared as possible.
Have you locked in a mortgage rate during pre-approval before? Have you switched from a variable to a fixed mortgage so you can lock in a better rate?
We’d love to hear your stories on the subject. Please feel free to leave a note in the comments section below.
FAQ
Is it better to lock in my mortgage rate during the pre-approval stage?
More often than not, it’s a good idea to lock in your mortgage rate during pre-approval. The security of knowing that your rate won’t go up while you’re house hunting can provide much-needed peace of mind. If you’re at all nervous about the rates going down before you close, be sure to ask about a float-down option during the initial pre-approval stage.
When can you lock your mortgage rate?
You can lock in your mortgage rate with your lender during the pre-approval phase, and you can also switch from a variable rate to a fixed-rate mortgage later and lock in a specific interest rate. However, this latter option may come with extra penalties if you don’t have a convertible mortgage.
How long can you lock in a mortgage rate?
In Canada, buyers are able to lock in a mortgage rate for as few as 30 days or as many as 130 days. The length of the term you receive is determined by the lender. Right now, BMO and Scotiabank offer the longest lock terms, at 130 days. You may be able to lock in for longer if you’re building your home, specifically through RBC.
How do you lock in a mortgage rate?
Locking in your mortgage rate usually happens during the pre-approval process, so you’ll have to apply for pre-approval in order to do this. The application process is a bit different, depending on whether you work with a mortgage broker or directly with a lender, but once you’re provided with the terms of pre-approval, you’ll be able to lock in your rate for the specific length of time offered by your chosen lender.
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