Commitment Letter

A commitment letter is a lender's formal written offer that sets out the specific terms on which it is prepared to fund your mortgage. It moves a file from "likely approved" to a documented offer, listing the mortgage amount, rate, term, amortization, payment frequency, and the conditions you must still satisfy before money is advanced.

What a commitment letter contains

In Canada, the letter typically confirms:

The mortgage amount, loan-to-value ratio, and whether mortgage default insurance applies.
The mortgage term, rate type, and any rate-hold expiry date.
Payment frequency and prepayment privileges.
Conditions: income and employment verification, an appraisal, a title search, property insurance, and a satisfactory down payment trail.
Fees payable at closing, which sit alongside closing costs such as land transfer tax.

How it differs from a pre-approval

A mortgage pre-approval is an early estimate based on limited information. The commitment letter comes after full underwriting of both your application and the property. Federally regulated lenders apply OSFI Guideline B-20, and insured mortgages must also satisfy the federal mortgage stress test, which qualifies you at a higher rate than your contract rate. The commitment letter reflects the outcome of those checks, not a quick glance at a credit score.

Conditions, deadlines, and signing

The offer stays conditional until each requirement is met. Common deadlines include the financing condition in your agreement of purchase and sale and the rate-hold expiry date. Read the fine print before signing: the commitment generally becomes binding on the lender once you accept it and clear its conditions, but it may also trigger a fee if you walk away. Ask how the commitment fee is handled and whether it is credited at closing.

Why it matters

Until the commitment letter is issued and its conditions are satisfied, your financing is not final. Sellers, lawyers, and notaries ask for it, and your legal representative needs it to prepare closing documents. A missed document or a slow return of signed pages can push a completion date. Keep the letter with your file and compare its terms against what you were originally quoted.

Frequently asked questions

Is a commitment letter the same as a mortgage pre-approval?

No. A pre-approval is an early indication of how much you might borrow, based on limited information, and it is not binding on the lender. A commitment letter follows full underwriting and a property review. It states the exact amount, rate, term, and conditions the lender requires, and it becomes binding once you accept it and satisfy those conditions.

What conditions are usually attached to a commitment letter?

Typical conditions include proof of income and employment, a satisfactory credit report, an appraisal of the property, a clear title search, confirmation of your down payment source, and property insurance. Lenders may add conditions for a sale of your existing home or for condo document review. Each condition has a deadline, so confirm what your lender needs.

What happens if I do not meet the conditions in a commitment letter?

If a condition is not met by its deadline, the lender is generally not obliged to advance funds and the offer can lapse. That is why a financing condition in your purchase agreement matters. If circumstances change, contact the lender or mortgage professional early; sometimes an alternative document or a short extension can be arranged.