Mortgage Commitment Letters – Get them signed before they expire
| September 17, 2020
Practice reviews conducted recently by RECA have uncovered an increasing number of instances where lender commitments have been signed by borrowers after the commitment date has expired.
Industry professionals must provide competent service to all consumers and give the best possible service and advice to their clients. This means each industry professional is responsible for achieving and maintaining their competence in all areas in which they practice. Proper completion on commitment letters is part of providing competent service.
Commitment letters are legal documents between the lender and the consumer, outlining terms such as the interest rate, loan term, or other aspects related to the deal. Basically, a commitment letter sets up a borrower with the ability to buy a home, refinance their mortgage, or restructure their mortgage with a different lender.
Loan commitments take a little longer than mortgage pre-qualifications or pre-approvals because they are more thorough and represent the terms and conditions the borrower and lender agree on. The letter provides all parties with confirmation that the lender is prepared to loan the necessary funds to the borrower.
However, once a commitment letter expires, lenders are no longer obligated to honour the terms as outlined, which puts the client at risk of having the terms of the commitment changed or cancelled altogether.
When a mortgage professional receives a commitment letter from a lender it is vital that they arrange to meet with, or otherwise review the commitment, with their clients as soon as possible. This will ensure the clients have time to understand the commitment letter and ask any questions they might have.
Should a client have a commitment fall through because of a missed deadline, that client could file a consumer compliant with RECA against the mortgage professional.
If circumstances arise where the mortgage professional can’t get their clients to sign the commitment before the expiry date, the professional must obtain an extension from the lender. By getting the commitment letter signed before it expires, mortgage professionals are providing competent service to consumers.