Thinking of buying? A mortgage pre-approval can pay off

A mortgage pre-approval can pay off, in more ways than one

Whenever someone tells me they are planning to get into the housing market and hope to start shopping soon for a home, one of my main pieces of advice has always been to start by getting a pre-approved mortgage before they begin looking.

People sometimes make the mistake of waiting until they are about to make a purchase to then go and get their mortgage, but as I have always explained to my clients, there are many reasons why it’s a good idea to get your mortgage pre-approval early.

There is no cost to get a pre-approved mortgage, and it can give you peace of mind during your search, protecting you from rate increases for a specified period. A financial institution will usually guarantee you a particular rate for a period of about four to six months during your home- searching process.

There’s no down side to getting a pre-approval. If the rate happens to go down during your search, you will get the benefit of the lower rate. If the rate goes up, at least you have the comfort of knowing you’ve locked in a rate for purchasing.

Because interest rates have been low for quite a while, and this has attracted many first-time buyers into the market in the last few years, many people tend to get complacent and think the rates will stay that way. But banks generally have increased their rates slightly in the spring, the time when many people also start looking for homes. And there has been additional speculation lately that rates could rise.

A recent report by the Royal Bank of Canada predicted that with bond yields expected to increase because of an improving economy, mortgage rates will gradually rise as well.

Many people don’t realize how much of a difference even a slight interest in the rate can make in the cost of a mortgage. But if rates do start to increase, even if only slightly, it will eat into your budget and how much you end up paying in interest as shown in the chart below.

Of course, even if rates stay where they are and do not increase, there are other reasons why a pre-approved mortgage is an excellent idea if you are beginning your search for a home.

Knowing that you are pre-approved for a property at a certain price will save you time in the home buying process. You and your agent will then only be looking at houses that you know you can afford, and you’ll be able to search for a property already knowing what your monthly payments would be.

As well, if you see a home that you fall in love with, you can place an offer immediately, and the seller will know that you are serious and have solid backing for the purchase. In the event of a bidding competition, this could give you a decided advantage over another interested buyer who does not yet have mortgage approval.

These are just a few of the reasons why getting a pre-approved mortgage can really pay off, in more ways than one.