How Long Can You Lock in a Mortgage Rate?

This Page's Content Was Last Updated: June 27, 2022
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What You Should Know

  • Many lenders offer a rate hold while giving you a mortgage pre-approval.
  • A mortgage rate hold is a free option given by a lender to potential home-buyers to receive their business.
  • In a rising rate environment, like the one encountered in the middle of 2022, a rate hold for a typical mortgage in Canada can save you around $25k.
  • Lenders who offer a rate hold typically do so for a period between 90 days and 130 days.
  • Some brokers offer a higher rate in a pre-approval compared with the rate they offer for live deals.

What is a Pre-Approval?

Mortgage Rate Hold Diagram

Getting a pre-approval before you start shopping around for houses is strongly recommended. Although having a pre-approval is not necessary for becoming approved for a mortgage, this recommendation is sound because, in getting a preapproval, you would sit down with your lender or mortgage broker and take an in-depth look at your financial situation. You would also ensure that you have the documentation needed for getting a mortgage. At the end of this process, you would get a confirmation of mortgage loan pre-approval, colloquially known as pre-approval. A lender issues this document and states how much, at what interest rate, with what term and amortization period you can borrow. Last but not least, the preapproval letter would state your monthly payment.

When getting pre-approved, most likely you do not know which house you would like to purchase. Thus a pre-approval is only based on the borrower’s information, while approving a mortgage would be based on both the borrower's creditworthiness and the property's marketability. As a result, a pre-approval does not guarantee that you can receive a mortgage.

Though a pre-approval is not a guarantee for receiving a mortgage, it actually is a valuable financial instrument. The rate hold included in a pre-approval is an option on the mortgage rate; It is offered by many lenders free of charge. Its payoff structure is almost identical to an interest rate call option. If the mortgage rate is lower than the pre-approval rate at the time of purchase, your option is out of the money. You put your pre-approval aside and ask your lender for a mortgage loan at today's mortgage rate. On the other hand, if mortgage rates have increased at the time of purchase, you would use your option by taking the preapproval to your lender and asking them to honour their commitment and give you a mortgage at the preapproved rate.

Value of a Rate Hold

The most critical factors determining the value of any option are the strike price and the expiration date. The same goes for a mortgage rate hold. The lower the mortgage rate and farther the expiration date, the more valuable the preapproval.

The other factor affecting an option's value is the underlying asset's volatility. The more volatile the price of an asset is, the more valuable an option on that asset is. Thus the value of a preapproval increases as the volatility of the mortgage rate increases. Volatility is a quantity ascribed to financial variables (like a rate, asset price, or return of a financial instrument); volatility measures the typical deviation in the financial variable from its average value. Historical volatility of mortgage rates in Canada for different periods is reported in the table below.

Time IntervalWeekly Mortgage Rate Volatility (Standard deviation)
1 year fixed5 years fixed3 years fixedVariable rate
First half 20220.430.250.450.41
20210.040.000.000.00
20200.210.150.180.60
20190.000.080.170.00
20180.120.110.120.21
20170.040.140.140.22
Data in this table are calculated using weekly mortgage rates published by the Bank of Canada.

It is fascinating to note that there has been almost no volatility in Canadian mortgage rates during 2021 and 2019, while in the first half of 2022, mortgage rates volatility has exploded. As a result, rate hold as an option on a mortgage rate is more valuable today than at any time in the recent past. Among the factors affecting the value of your preapproval option, mortgage rate volatility is related to macroeconomic factors and is beyond the control of you or your lender.

You would most likely have already visited the WOWA mortgage rate page and know the rates offered by different lenders. Note that in addition to federal regulations, mortgage lending in Canada is regulated at a provincial level. So to offer a mortgage in each province, a lender or broker must receive a license from that province. As a result, a broker or a lender might not be offering mortgage products in all provinces, and even if they are, they might offer different rates for different provinces.

Thus it is best to check the mortgage rate page for the province where you plan to buy your real estate. WOWA provides a page for mortgage rates in Ontario which is the most populous Canadian province with a population of 14.95m, another page for mortgage rates in Quebec which is the second most populous Canadian province with a population of 8.64 m, and another page for mortgage rates in British Columbia which is the third populous Canadian province with a population of 5.26 m. Mortgage rates in other populous Canadian provinces and territories are also provided, for example, mortgage rates in Alberta which is the fourth most populous Canadian province with a population of 4.48 m, and mortgage rates in Manitoba which is the fifth most populous Canadian province with a population of 1.39 m, and mortgage rates in Saskatchewan which Canada’s sixth populous state with a population of 1.18 m. Pages for other Canadian provinces and territories are also provided, for example, Nova Scotia mortgage rates, and New Brunswick Mortgage Rates. The factors which may differ from lender to lender are the offered rate (the strike price) and the lock period. Our concentration on this page is on the lock period.

Mortgage Rate Hold Periods by Lender in Canada

LenderRate Hold/Lock Period (Days)
BMO130
ScotiabankUp to 130
Nesto120
Neo Financial120
Laurentian120
HSBC120
RBC120
TD120
Simplii Financial120
Tangerine120
CMLS financial120 (5 years insured only)
National Bank90
Investors Group90
Motusbank90

As can be seen in the rate-hold table, typically, your pre-approval holds a fixed interest rate for you between 13 and 19 weeks. The longest hold period belongs to BMO. So to see the amount of savings possible with a rate hold, we consider 17 weeks as the length of a good rate hold offer. The weekly mortgage rate volatility table above is equivalent to the 17 weeks volatility table below.

Time Interval17 Week Mortgage Rate Volatility (Standard deviation)
One yearFive yearThree-yearVariable rate
First half of 20221.781.031.841.69
20210.170.000.000.00
20200.850.640.732.46
20190.000.310.690.00
20180.480.440.490.87
20170.180.600.580.93

As can be seen in the table above over a 17 week period, mortgage rates have likely fluctuated of the order of 1%. Currently, the benchmark price of a Canadian home is around $840k, while the average price of a home in Canada’s most populous province, Ontario, is $940k. The table below presents a few typical mortgage situations to consider. In this table benchmark prices for Canada and average prices for Ontario are used as home prices and a down payment of 20% is assumed.

Sensitivity of monthly payments and total interest cost over the mortgage term to the interest rate.
Purchase Price840,000840,000840,000940,000940,000940,000
Mortgage amount672,000672,000672,000752,000752,000752,000
Interest rate4.50%3.50%5.50%4.50%3.50%5.50%
Monthly payment3,7353,3644,1244,1803,7654,618
Interest paid over the five-year term224,112201,851247,600250,792225,881277,076

This table shows how getting a preapproval 17 weeks before your purchase can save you between $20k to $25k over the first five years of your mortgage payments. In this table, a 5 year fixed rate mortgage is assumed. The saving from a pre-approval could be much larger if a 7-year or 10-year mortgage is used.

Variable-Rate Mortgages

Over the past year, variable-rate mortgages have gained considerable popularity in the Canadian mortgage market. In a variable rate mortgage, your interest is based on the lender's prime rate minus a discount. A pre-approval would hold this discount rate for you, but the volatility in the discount rate a lender offers is very low. Thus there is minimal value in seeking and receiving a pre-approval for a variable rate mortgage.

The calculators and content on this page are provided for general information purposes only. WOWA does not guarantee the accuracy of information shown and is not responsible for any consequences of the use of the calculator.