In most cases when buying real estate, banks offer a guaranteed interest rate on a mortgage approval for a period of 3 months. This standard is different for new condo projects because the units are often delivered 12 to 24 months after the actual purchase. For buyers, it is important to do business with a bank that can offer a guaranteed rate until the delivery of your unit.
To facilitate access to a guaranteed rate for a prolonged period as well as accelerate the entire process for buyers, most new condo projects in Montréal prefer to work directly with one or several banks in particular. Indeed those firms are already quite familiar with the project and its details, and it is they who end up dealing with the vast majority of buyers.
In addition, the banks working with Prével projects are in direct contact with the notaries, which facilitates the speed and efficiency of all necessary communication up until the delivery. This allows the buyers to take charge of the inspection by the bank evaluator, to make sure the mortgage is finalised and that all necessary funds are in the notaries’ account in time for you to move in.
Rates guaranteed until the delivery date are slightly higher than short-term term ones because the risk assumed by the bank is higher. For example, a rate guaranteed for 30 months will be 0.5% lower than the current rate, while the guaranteed rate for 3 months would be about 1% lower. Just don’t forget that buyers can get a readjustment at current three-month rates before the delivery; if rates have stayed the same or gone down, this is to your benefit.
Guaranteed rates protect buyers and sellers because if the client is approved at 3% but by the time the unit is delivered they have climbed to 6%, the bank may determine that the client no longer has the capacity to pay for their condo; in such a case the buyer loses his purchase and the developer loses the sale.
Finally, many people believe that there is an advantage to getting a mortgage with the bank you usually do business with. It’s logical to think you have a better chance of approval with a bank you have an account, a credit card and some history with. That’s not usually the case. Your bank will do the exact same calculations as any other banks; they will study your credit history, your work history and your capacity to borrow as much as you need for your unit.
I hope this post has helped clarify the question. Don’t hesitate to ask us more the next time you come to the sales office of one of Prével’s projects.
Philippe
