Commitment Fee

A commitment fee is a charge a lender applies for formally committing to fund a mortgage on agreed terms. Paying it turns a conditional approval into a binding written promise to advance funds — the lender's mortgage commitment — rather than an informal indication of interest.

What the fee buys, and what it does not

A commitment fee secures the lender's side of the deal, not yours. It generally does not reduce your interest rate, and it is separate from a lender fee, an origination charge, or third-party costs such as an appraisal. Lenders should disclose it in the commitment letter and in the cost-of-borrowing disclosure before you sign.

• Charged when the lender issues and holds a formal commitment to fund.
• Typically non-refundable if the borrower does not close.
• Sometimes credited back against other costs, depending on the lender.

Where it appears in Canadian lending

On a standard residential mortgage, a commitment fee is less common than in commercial, construction, and private lending. It shows up most often with a construction mortgage, where the lender commits to a total advance released in progress draws, and in private lending, where funds are committed from a limited pool. Some lenders also charge one where a borrower locks a rate for an extended period. Because terms vary, confirm in writing which charges apply to your file and whether any are refundable.

Why it matters to a borrower

Because it is usually paid up front and kept if the deal does not complete, a commitment fee raises the cost of walking away. Before paying, confirm that the commitment letter matches your understanding of the rate, term, and conditions, and that the total lines up with your other closing costs. If the fee is large, ask whether it is credited at funding, or whether a shorter rate hold would avoid it. This is general information, not advice about your own mortgage.