A sum given by the
borrower to the lender to hold a mortgage
commitment for a specified period of time.
The fee is forfeited should the loan not be
closed within a specified time.
For example; A
developer obtains a standby loan on a
project to be developed. The developer hopes
interest rate will decline during the
construction period so that permanent
financing may be arranged with terms
better than those on the standby loan.
However, a permanent loan commitment is
required to obtain a construction loan . The
developer pays a
standby fee to compensate the lender
for making the standby loan commitment. At
the completion of construction, the
developer has the
option of exercising the standby
commitment or forfeiting the fee.
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