The Mortgage Commitment Letter in Ontario: What It Means and When It's Binding

The word "commitment" in "mortgage commitment letter" sounds absolute — like the money is already there. It isn't quite that simple. A mortgage commitment letter is a lender's formal offer to lend, and it genuinely does bind both sides once accepted — but almost always subject to a list of conditions that still have to be satisfied before any money moves.

Understanding what the letter actually promises, what it asks of you in return, and which conditions still pose real risk between now and closing day can save you from an unpleasant surprise late in a purchase.

What a Commitment Letter Actually Is

A mortgage commitment letter (sometimes called an approval letter or mortgage offer) is a lender's written statement that it is prepared to advance a specific mortgage loan on specific terms — amount, rate, term, amortization, and repayment schedule — to a specific borrower, for a specific property. It's more than a pre-qualification estimate and less than a guarantee of funds in hand.

What the Lender Is Committing To

By issuing the letter, the lender is agreeing to fund the mortgage as described — but almost always "subject to" a list of conditions being met. Until those conditions are satisfied (or waived by the lender), the commitment isn't a completed transaction; it's a conditional promise.

What You're Committing To By Accepting

Signing and returning the commitment letter typically means you're agreeing to:

• Borrow on the specific terms set out — rate, amount, amortization, and any fees disclosed
• Provide the documentation the lender lists as outstanding conditions
• Proceed with the property, appraisal, and insurance arrangements the lender requires
• Accept any conditions specific to your file (for example, proof that a previous property has sold, or that a certain debt has been paid down)

Once accepted, backing out isn't necessarily free of consequence — some lenders build in fees or rate-hold forfeitures if a borrower walks away from a signed commitment without cause.

Common Conditions That Must Still Be Met

Almost every commitment letter comes with conditions. Typical categories include:

• [ ] Satisfactory appraisal of the property, confirming its value supports the loan amount
• [ ] Proof of income and employment, and sometimes a re-verification closer to closing
• [ ] Proof and source of down payment funds (often a defined period of bank statements)
• [ ] Satisfactory property insurance in place for closing day
• [ ] Mortgage default insurance approval, where the loan requires it (generally where the down payment is below 20% of the purchase price)
• [ ] A clear title search and standard lawyer's certification as part of the closing itself
• [ ] No material change in the borrower's financial situation between approval and closing

Each unchecked condition is a point where the deal could still need adjusting — or, in a worst case, fall apart.

When Is It Legally Binding?

Generally, a commitment letter becomes a binding agreement once both the lender has issued it and the borrower has signed and returned it, accepting its terms — but "binding" here means binding as a conditional contract, not a guarantee that funds will actually flow. The obligations of both sides are tied directly to the conditions listed being satisfied. A commitment that remains "subject to" unmet conditions is not the same as a firm, unconditional approval.

What Can Still Go Wrong Before Closing

Even after a commitment letter is signed, several things can still interfere with closing:

1. The appraisal comes in below the purchase price. If the property doesn't appraise for enough to support the loan amount, the lender may reduce the amount it will advance, requiring the borrower to cover the gap.
2. A material change in financial circumstances. A job loss, a change in employment status, or new debt taken on before closing can lead a lender to revisit or withdraw its approval.
3. A title or property issue surfaces. Liens, easements, or other encumbrances discovered during the title search can require resolution before the lender will fund.
4. Insurance can't be arranged on terms the lender accepts.
5. A condition simply isn't met in time — missing documentation or an unresolved requirement can delay or derail closing if it isn't cleared before the scheduled date.

None of these outcomes are guaranteed either way — they're simply the points in the process where a signed commitment can still unravel if something changes.

Commitment Letter vs. the Agreement of Purchase and Sale

The commitment letter is a separate document from your Agreement of Purchase and Sale (APS) with the seller, though the two are closely linked. Many resale APS agreements include a financing condition, giving the buyer a window to arrange satisfactory financing before becoming firmly bound. Once that condition is waived or expires, the buyer's obligation to close is generally no longer tied to whether financing actually comes through — which is exactly why lining up a solid commitment before waiving that condition matters.

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