Take-Out Commitment

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.