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Why Pre Approval Rates are Different than “Live Deal” Rates

Transcript of Video Blog:
Hi everyone, Rowan Smith with the Mortgage Centre. I want to talk a little bit just about our current interest rates and why people will get a different rate on pre-approval than what they get it they have a live deal.

A lot of lenders have started doing things which are called quick closes within 30 days or a deal is only available for a live deal and you actually have to have a contract in place. So for example, some of my lenders are offering 4.14 as a current rate on a 5-year for a pre-approval. So that rate is guaranteed.

Should rates go flying up between now and the next 120 days, you’re guaranteed to face no higher than 4.14, but if you go to my website, you’ll see that I’m advertising 3.85. So you’re saying, “Why aren’t you holding the 3.85 for me?” That’s because the 3.85 is a promotional rate, which is only available on pre-approvals.

Now, these are just hypothetical scenarios, but it’s an approximation of what you see in the marketplace right now. There’s a lot of lenders which will only issue pre-approvals at a specific slightly higher rate than perhaps their absolute best rate.

Why? Well, a lot of pre-approvals don’t go through. There’s a cost to a bank for a pre-approval. They have to hedge against possible interest rate increases. So when you’ve got a live deal, they don’t have to. They know it’s closing within a specified period of time, and their costs are fixed. So in those cases, they can give a slightly better deal.

The bottom line with all of this is even though I have a pre-approval rate held for you, I may have a better rate when you actually write a deal or when you pull the trigger on your refinance.

So ask me, when you’re doing your pre-approval, “Is this the best rate that you have at all or is the best rate we can get as a pre-approval?” Because there is a difference, but we will always give you the lowest possible rate when your deal goes live. For the Mortgage Centre, I’m Rowan Smith.

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