Take-Out Commitment
Categories: Banking
The deal you make when you hire a hitman? Another name for agreeing to take someone out on a date? Promising to pick up your chicken fried rice?
Nope. It has to do with mortgages.
You're building a new office park on an empty lot on the outskirts of town. You've taken out a loan to pay for construction. Once the office park is finished, you'll need a mortgage on the building to pay off the construction loan. In other words, you need someone to take out your current debt commitment and replace it with another.
You meet with a local bank before you start construction. They agree to provide the mortgage once construction is finished. They just made a take-out commitment. The bank will provide a mortgage at some future date.
The term also comes up when one party agrees to buy a mortgage from another at some set point in the future. The local bank giving you the mortgage on the office park meets with reps from a big national banking chain. They're interested in buying the office park mortgage, but for tax reasons, they can't do it until the beginning of next year. So they agree to purchase the mortgage from the local bank next February. Another take-out commitment.
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Finance: What is a Commitment Letter?5 Views
Finance a la shmoop what is a commitment letter? dear Rebecca it's been fun and
all but asking me to move in with you was a real turnoff so uh have a nice [Rebecca reading letter]
life yeah that would be a fear of commitment letter I know that one well
well so what's a commitment letter then all right well you need dough but you
don't need it today you need it in six months when construction is finished on
your cabin by the lake at that point you'll convert your very expensive
building loan into a normal mortgage well you can go to the bank and for a [Man walks into bank]
small ish fee get a commitment letter from them which stipulates that assuming
nothing material changes between now and then you will in fact then get a loan
for one hundred fifty two thousand dollars at 5 percent fixed interest rate
for 30 years the bank is then committed to giving you that loan when you know [Contract stamped with committed]
eventually you need it that way you don't have to worry about your bank you
know breaking up with you which is nice because it's tough getting
the It's not you it's me speech from a guy in a bowtie [Man wearing bow tie talking to a man in the bank]