No two loans are the same. It’s critical you be able to understand the differences between loans. This article is about understanding the various loan structures, and terminology.
This is an important loan detail. Original loan terms change based on prepayments and extensions. This post is about understanding borrower extensions, and how they are structured and to highlight what investors should focus on when evaluating investments – where a borrower can extend a loan(per the terms of the loan documents). There are instances where a borrower negotiates an extension, at the time of the origination, which allows the loan to go past the maturity date.
Why do borrowers elect to extend repayment options
Borrowers can exercise an option to extend at will, if they have the option per the original terms. When they do that, it doesn’t mean NECESSARILY that there’s an issue with the loan, or the borrower’s ability to repay the loan. It’s also important you keep in mind the borrowers can only exercise this option when payments are current.
Often, there’s a reason to extend past the original maturity date. For example, the underlying property might be getting refinanced, or it may be under contract(about to go under contract) to be sold. Additionally, it can be hard to predict when repairs, or improvements to a house might be completed. Many homeowners who have dealt with renovations can understand these dilemmas. It might take longer than expected to complete the work, which isn’t in the borrower’s control.
How do we handle extensions
Extensions can vary in length and number. We frequently see loans with 3 month borrower extensions, but there are also instances where loans may have a 6, or 12, month extensions. Sometimes, a borrower may have the option to extend a loan more than once. All of these details can be included in your hard money loan.