Commitment Fee

Commitment Fee

The fee levied by a creditor on the borrower for future or unused credit is called commitment fee.

Definition: The fee levied by a creditor on the borrower for future or unused credit is called commitment fee. In the case of mortgage, the lender does not disburse the credit at one go to the builder. In most of the cases, the loan disbursal is linked to the project completion stage. Normally the borrower needs to pay a charge for accessing the loan in future from the lender. This is called the commitment fee.

Description: In general a commitment is a pledge or word of honor by one party to another to operate in a particular way. In real estate business, commitment is a promise by the lender to provide a loan to the borrower by a specific date at a certain rate of interest.

It is a written promise to insure or reserve the loan for the prospective borrower as per the details mutually agreed upon. The amount charged for making such a commitment is called commitment fee.

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