Posted on: 27th Dec, 2005 03:27 am
I had applied for commercial mortgage and now the loan has been approved. The bank sent me a letter stating the terms and conditions for the mortgage. What I find is that they have charged a commitment fee. What is this for? They are charging 1% of the purchase price of property as the commitment fee. Is it a point? is this a usual fee charged by banks for mortgage?
Hi Sandra,
The commitment fee is not included within points that are usually paid to lenders so that you get a better rate on your mortgage. A commitment fee including 1% of the loan amount is quite standard for commercial mortgages. So the bank is not actually charging you more. But you can obviously negotiate with the bank for a lower percentage say 0.5% as commitment fee. And, in case your lender wants to make the deal, he will surely accept a lower fee.
I would also like to mention that the rate charged by the bank is moderate enough compared to finance companies mostly charging higher than 1% commitment fee.
Even though the commitment letter states that you will be paying the 1% fee, still you can negotiate with your lender. You can carry out the negotiation in the following manner:
Regards,
Caron.
The commitment fee is not included within points that are usually paid to lenders so that you get a better rate on your mortgage. A commitment fee including 1% of the loan amount is quite standard for commercial mortgages. So the bank is not actually charging you more. But you can obviously negotiate with the bank for a lower percentage say 0.5% as commitment fee. And, in case your lender wants to make the deal, he will surely accept a lower fee.
I would also like to mention that the rate charged by the bank is moderate enough compared to finance companies mostly charging higher than 1% commitment fee.
Even though the commitment letter states that you will be paying the 1% fee, still you can negotiate with your lender. You can carry out the negotiation in the following manner:
- Ask the bank what the fee is about. The lender will probably give you an estimate of the transaction costs that include the commitment fee.
- You can explain to the bank that you have already paid a large amount of fees on home appraisal and other closing costs.
- You can ask the lender if the commitment fee is inclusive of the legal fees and he may state that it is not a part of the attorney fee which is the actual legal fees. Also, try to convince him that you are already paying for a number of costs involved for the mortgage and then request him to reduce the fee amount.
- You can also say that you understand that the bank needs money for its own expenses but you are not comfortable with the fee as you are already paying the interest on the loan amount. Then you can tell him that you are willing to pay half the interest.
Regards,
Caron.
Sandra, let me tell you what happens when a borrower decides not to take the loan and demands return of the fee stating the reason that no service was performed.
Most often in such cases courts have given a ruling that lender is entitled to retain the commitment fee as compensation for keeping aside the funds for loan to the borrower.
Most often in such cases courts have given a ruling that lender is entitled to retain the commitment fee as compensation for keeping aside the funds for loan to the borrower.
A fee paid to an underwriter in connection with an underwritten rights offering or an underwritten forced conversion as compensation for each share of common stock he underwriter obtains and must resell upon the exercise of rights or conversion of bonds.