Paying out a private loan that is about to expire

Short-term private loans are meant to end. The trouble starts when the end date arrives before the plan does. The bank refinance is still waiting on financial statements, the sale campaign has drifted, or a project ran three months late. Then the current lender says it will not extend, or will only extend on terms you would rather avoid.

If the property still has equity, the clean answer is usually a new loan that pays the old one out in full. This page explains how that refinance works, what the payout figure really includes, why caveat loans deserve special attention, and what the new lender will want to see.

Why do private loans reach maturity without an exit?

Most borrowers who face an expiring private loan did nothing wrong. The exit they planned simply moved. Common causes:

• Bank delays. The bank wants one more year of financials, a fresh lease, or a lodged tax return before it will refinance.
• A slow sale. The property or business being sold is taking longer than the agent forecast.
• Project timing. A development, fit-out or contract ran behind schedule, so the cash it was meant to release has not arrived.
• Lender appetite. The current lender is reducing its book, or simply does not offer extensions on your type of loan.

Our guide to loan term extensions covers when asking the current lender for more time is the better path. When that door is closed, a refinance is the next step.

What are my options when a private loan is about to expire?

Option	When it works	Watch out for
Extend with the current lender	The lender offers it and the terms are acceptable	Extension fees, and a lender that may still want out soon
Refinance to a new private lender	Equity remains and a fresh exit is in sight	Leaving enough time to settle before maturity
Refinance to a bank	Financials and credit now meet bank policy	Bank timeframes rarely suit a hard deadline
Sell the security	A sale was always the plan and a buyer is close	A rushed sale can cost more than a refinance

A refinance with a new private lender is often the bridge between the first and third rows: it buys the months the bank needs, on a term set for the new exit rather than the old one.

How does refinancing a private loan or caveat actually work?

The mechanics follow a set order. The aim is for the old loan to be repaid, and the new security registered, at the same moment.

1. Enquiry. Tell us the property, what is owing to each lender, the maturity date and the new exit.
2. Specialist call. A specialist checks the numbers and the timing with you.
3. Indicative terms. You see the proposed amount, term and how interest will be handled.
4. Payout letter. You ask your current lender for a written payout figure to the expected settlement date.
5. Letter of Offer and documents. You sign the Letter of Offer and loan documents with your solicitor.
6. Settlement. The new lender pays the old lender directly. The old mortgage is released, or the old caveat is withdrawn, and the new security goes on title.

Each registry has its own forms. In NSW, the Registrar General’s guidelines say a caveat is formally withdrawn by a subscriber lodging a Withdrawal of Caveat form with NSW Land Registry Services. In Queensland, a mortgage is removed by registering a Form 3 release signed by the lender, and Titles Queensland says most correctly prepared dealings register within three to five working days.

Should a caveat loan be replaced with a registered mortgage?

Often, yes. A caveat is quick to lodge, which is why caveat loans suit urgent needs, but it has a limited shelf life.

• Queensland. The Titles Queensland practice manual says a caveat generally lapses unless the caveator starts a court proceeding within three months of lodgement. A caveat lodged by an equitable mortgagee lapses even if the owner’s consent was deposited with it.
• NSW. An owner can serve a lapsing notice, and the caveat lapses 21 days after proper service unless the caveator obtains a Supreme Court order extending it.

So when a caveat loan has outrun its original timeframe, the refinance is a good moment to move to a registered second mortgage or a first mortgage. Our guide on converting a caveat to a second mortgage explains the steps, and the state-by-state detail sits in caveat lapsing notices by state.

What goes into a private loan payout figure?

Ask your current lender for the figure in writing, calculated to the expected settlement date, with a daily amount in case settlement moves by a day or two. It normally includes:

• the principal advanced;
• interest capitalised during the term, plus any interest unpaid since the last payment;
• default interest, if the loan has passed maturity;
• extension or administration fees under the loan agreement;
• the lender’s legal costs and discharge or withdrawal fees.

Check it against the original Letter of Offer. If something looks unfamiliar, have your solicitor ask about it before settlement, not after.

What does a well-timed refinance look like?

Illustrative example: a Gold Coast builder has a $400k caveat loan over an investment unit, taken to bridge two progress payments. The unit is worth about $1.1m and has a $380k bank loan. The builder’s bank has agreed to refinance, but not until the company’s financial statements are finalised, which is ten weeks away. The caveat loan matures in three weeks and its lender will not extend. A new $460k registered second mortgage pays out the caveat lender’s $425k figure, covers costs and capitalises interest for a nine-month term. The caveat is withdrawn at settlement, the lapsing risk disappears, and the bank refinance repays the second mortgage once the statements are lodged.

The new loan worked because the exit was specific, already agreed in principle, and comfortably inside the new term.

Who does an expiring-loan refinance suit?

It usually suits you if:

• there is clear equity left in the property after the payout figure;
• the original exit has moved, not vanished;
• you are acting while the loan is still current.

It usually does not suit you if:

• the business cannot service, prepay or capitalise interest for a further term;
• there is no realistic exit, only hope that the market lifts;
• the refinance would simply repeat the plan that just failed.

Our list of exit strategy red flags is a useful self-check before you apply.

What does refinancing a private loan cost?

There is no single price list. The new loan is priced on four things: the property behind it, the LVR, the term and how convincing the exit is, and the goal is the sharpest price your deal can support. Ranking matters too: a registered first mortgage usually comes in cheaper than a second mortgage or caveat, since the lender is first in line and carries less risk.

Budget for the new loan’s assessment fee (shown on the Letter of Offer), legal and registration costs, and the outgoing lender’s discharge costs. Compare that total with the cost of drifting past maturity, where default interest and enforcement costs can grow quickly. If the loan has already defaulted, see refinancing a loan in default.

Ready to compare? Send us the payout date and the property details and a specialist will map out the timing.

Key terms

• Maturity: the date the loan must be repaid in full.
• Payout figure: the lender’s written statement of everything needed to clear the loan on a given date.
• Withdrawal of caveat: the registry form that removes a caveat from the title.
• Release (discharge) of mortgage: the registry form that removes a registered mortgage once it is repaid.

Loan maturing soon? See if you qualify

Enquiring costs nothing and there is no credit check when you first enquire. Your details are read by a real specialist and stay with us, rather than being sent to a queue of lenders. Our lending partner fundU lends directly, with no formal valuation required, which keeps the timetable short.

Tell us the maturity date, the payout figure if you have it, what is owing on the title and how the new loan will be repaid. Accurate answers mean the first reply is the right one. Start your 60-second enquiry.