Canadian mortgage approval requires signing?
February 25, 2021 12:50 PM Subscribe
We bought a house! It currently under construction and so the sale will not close until later this year. However our offer was subject to financing, so we researched the mortgage offerings from a number of Canadian banks and applied to two. Both provided an approval. One is asking us to sign some documents already and I don't really understand why they need signatures.
Our circumstances are a bit out of the norm in that the closing date is well outside of 120 days, so we are not signing the actual mortgage documents before a lawyer. At this point in time we've only obtained approvals in order to have the assurance that, short of us suffering some drastic change in our finances, we do in fact qualify for a mortgage for a home of this value.
Bank 1 sent us a yay-congrats-you're-approved letter and that was it. Bank 2 sent us a whole slew of documents, including mutli-page consent forms and a Commitment Letter requiring our signatures. I was wary of signing something I didn't really understand, especially since we haven't decided which bank we're going with yet. The banks will need to give us new interest rates when we get nearer to the closing date and we plan to compare the offered rates before making a decision.
I called the mortgage person at Bank 2 hoping he could explain what we were signing exactly. It was very confusing. He said other banks may ask clients to sign Commitment Letters to try to trick them into thinking they can't shop around for better rates at other banks. But he said Bank 2 issues Commitment Letters solely for the client's benefit. He said that it provides a guarantee that they will lend the promised amount to the client and the client does not have to go through another approval process closer to the closing date, and they guarantee a capped rate that the final offered interest rate will not exceed. He promised that the Commitment Letter would not obligate us to Bank 2 in any way.
I'm still a bit wary. If the Commitment Letter is the bank's guarantee to us for our benefit alone, and would not place us under any obligations, then why are our signatures required? If we don't sign the letter, does that mean the bank will not honor their commitment to lend us the money, and we will have to go through the approval process with them again? Not really a big deal, as we will need to have Bank 1 reapprove us as well. Also, the supposed capped rate on the Commitment Letter is not in any way labeled or indicated to be a capped rate, it's simply presented as the offered interest rate, and it's almost double what the current variable rate is, so not really much of a benefit in my view.
So my question is - do we sign the Commitment Letter? Does it really matter if we sign it or not? Am I being bullshitted or is this normal and I'm being paranoid? Do I have any real reason to question the wording on the letter ie "interest rate" vs "capped rate"?
Our circumstances are a bit out of the norm in that the closing date is well outside of 120 days, so we are not signing the actual mortgage documents before a lawyer. At this point in time we've only obtained approvals in order to have the assurance that, short of us suffering some drastic change in our finances, we do in fact qualify for a mortgage for a home of this value.
Bank 1 sent us a yay-congrats-you're-approved letter and that was it. Bank 2 sent us a whole slew of documents, including mutli-page consent forms and a Commitment Letter requiring our signatures. I was wary of signing something I didn't really understand, especially since we haven't decided which bank we're going with yet. The banks will need to give us new interest rates when we get nearer to the closing date and we plan to compare the offered rates before making a decision.
I called the mortgage person at Bank 2 hoping he could explain what we were signing exactly. It was very confusing. He said other banks may ask clients to sign Commitment Letters to try to trick them into thinking they can't shop around for better rates at other banks. But he said Bank 2 issues Commitment Letters solely for the client's benefit. He said that it provides a guarantee that they will lend the promised amount to the client and the client does not have to go through another approval process closer to the closing date, and they guarantee a capped rate that the final offered interest rate will not exceed. He promised that the Commitment Letter would not obligate us to Bank 2 in any way.
I'm still a bit wary. If the Commitment Letter is the bank's guarantee to us for our benefit alone, and would not place us under any obligations, then why are our signatures required? If we don't sign the letter, does that mean the bank will not honor their commitment to lend us the money, and we will have to go through the approval process with them again? Not really a big deal, as we will need to have Bank 1 reapprove us as well. Also, the supposed capped rate on the Commitment Letter is not in any way labeled or indicated to be a capped rate, it's simply presented as the offered interest rate, and it's almost double what the current variable rate is, so not really much of a benefit in my view.
So my question is - do we sign the Commitment Letter? Does it really matter if we sign it or not? Am I being bullshitted or is this normal and I'm being paranoid? Do I have any real reason to question the wording on the letter ie "interest rate" vs "capped rate"?
Best answer: Congratulations on the house!
Don't sign the commitment letter, especially if you don't understand what it commits you to based on the wording of the letter itself. What Bank 2's mortgage broker tells you verbally will have no legal weight when you find yourself obligated to take a mortgage through Bank 2 at a rate double the current variable rate or pay large penalties for breaking the contract that you inadvertently signed with them.
We got our mortgage through a credit union, which laid out all their rates, mortgage durations, amortization periods, and restrictions on prepayment in a very clear, explicit, and no-bullshit way. Contrast that with the bank we contacted while shopping around, which had "meh" rates posted publicly but which the (pushy, hard to understand) mortgage broker tried to convince us he could get us much better special deals on. We noped out of that before even seeing the full terms they were offering because we got such a sleazy vibe from the broker.
posted by heatherlogan at 1:14 PM on February 25, 2021 [3 favorites]
Don't sign the commitment letter, especially if you don't understand what it commits you to based on the wording of the letter itself. What Bank 2's mortgage broker tells you verbally will have no legal weight when you find yourself obligated to take a mortgage through Bank 2 at a rate double the current variable rate or pay large penalties for breaking the contract that you inadvertently signed with them.
We got our mortgage through a credit union, which laid out all their rates, mortgage durations, amortization periods, and restrictions on prepayment in a very clear, explicit, and no-bullshit way. Contrast that with the bank we contacted while shopping around, which had "meh" rates posted publicly but which the (pushy, hard to understand) mortgage broker tried to convince us he could get us much better special deals on. We noped out of that before even seeing the full terms they were offering because we got such a sleazy vibe from the broker.
posted by heatherlogan at 1:14 PM on February 25, 2021 [3 favorites]
Also, is Bank 2 named after a certain Atlantic province by any chance?
posted by heatherlogan at 1:22 PM on February 25, 2021 [1 favorite]
posted by heatherlogan at 1:22 PM on February 25, 2021 [1 favorite]
The commitment letter shows an assurance that a transaction can be financed up to a certain limit indicated by the bank. You can take this to the seller to show that you have means and intent to pay. It doesn't limit you, but it can be used by the bank to try to rush you into locking in. Don't. There's no rush, rates are stable, plus you can negotiate lower rates easily. If the letter shows a lower rate, you can show to the other lenders to see if they will match.
posted by Zedcaster at 11:18 AM on February 26, 2021
posted by Zedcaster at 11:18 AM on February 26, 2021
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posted by flimflam at 1:00 PM on February 25, 2021