A huge advantage–in this case thousands of dollars huge–to a mortgage pre-approval is that you protect yourself against rising interest rates while you are out there hunting down your dream home. Bonus!
In recent years, no one talked about this much as mortgage interest rates remained the lowest anyone could remember in fifty years, but we have experienced at least two rate hikes since August 2017, and more are expected before the end of the year.
For clients and first time home buyers Kaycee and Jayson, their pre-approval saved them a tidy sum.
THE STORY: A successful couple with a healthy household income, they began looking for their first home in July of this year, and asked me to tell them how much mortgage they would qualify for.
Smart home shoppers know in advance how much mortgage they will qualify for, and on what terms. This allows them to narrow their search to homes which fit their buying budget, and avoids wasting their real estate agent’s time as well as their own.
Kaycee was delighted to learn they could tap into over $960,000 if need be. I took an extra step and requested a formal pre-approval certificate from TD Bank. This gave them a rate guarantee of 2.74% for a fixed rate five-year term good until November 11, 2017.
THE NUMBERS: Kaycee and Jayson found their dream home last week and were able to take advantage of softer prices and bought for “only” $860,000. Not only did they save a ton of money this way, but that same interest rate has since gone up to 3.24%.
By requesting the pre-approval this couple saved 0.5% on their mortgage interest rate and will have a mortgage rate that is quite simply not available today. On a mortgage of $829,000 they will save $213 with each monthly payment. This is a pretty sizeable savings of $12,780 over their term of five years.
THE TAKE-AWAY: There really is no downside to arranging a pre-approval. If instead rates had fallen by the time they were ready to buy, Jayson and Kaycee would have received the benefit of the lower rate. Now that is a can’t lose proposition.