What happens at loan maturity

The end of the term

Private secured loans are usually short-term. They might run for three months, six months, a year or longer, but they all have an end date. On that date, often called maturity or expiry, the whole balance falls due. For loans with capitalised interest, the amount owing will be higher than the original advance, because interest has been added over the term.

Most borrowers repay at maturity without drama, because they planned the exit and executed it. Problems arise when the exit is late, smaller than expected or has fallen away entirely. Understanding how maturity works helps you avoid those problems or manage them if they occur.

Know your numbers

Long before maturity, know three things: the exact maturity date, the projected balance at that date and how that balance will be repaid. If interest is capitalised, ask the lender for a projection. If interest is prepaid, the balance at maturity is usually the original advance plus any fees. Write these down and set reminders. The exit strategy timeline helps map the key dates.

Repaying through a refinance

If your exit is a refinance, the new lender will need a payout figure from your current lender. This shows the exact amount needed on the planned settlement date, broken down into principal, interest, fees and discharge costs. Request it in good time, because lenders typically need several business days to prepare one.

At settlement, the new lender pays the private lender, and the private lender discharges its mortgage or withdraws its caveat. Settlements often run through PEXA, the electronic settlement platform, which coordinates payments and title changes on the same day.

Repaying through a sale

If you are selling property, your conveyancer will request the payout figure and arrange for the private lender to be repaid from the sale proceeds at settlement. Make sure the expected sale price, less selling costs, covers the projected balance. If a sale is close but will settle after maturity, tell the lender early and provide the contract.

Partial repayments before maturity

Some borrowers repay part of the loan during the term, perhaps from a progress payment or the sale of one of several properties. Partial repayments reduce the balance and, if your loan allows it, may release a property from the security. Ask in advance how partial repayments and releases work, as some lenders have minimum amounts or fees.

Asking for an extension

If the exit is running late, contact the lender before the due date. Lenders are far more receptive to a borrower who calls six weeks out with a clear explanation than to one who goes silent and misses the deadline. When you ask, give the reason for the delay, the new expected date, evidence that the exit is still on track and how long an extension you need.

The lender will review the property, the balance and the exit. If it agrees, there will usually be an extension fee and possibly revised terms. Extensions are not guaranteed, so have a backup ready.

When the loan goes overdue

If maturity passes without repayment or an agreed extension, the loan is generally in default. Default terms vary, but common consequences include default interest, additional fees, legal costs and the lender beginning recovery action. In serious cases, a lender may take possession of the property and sell it as mortgagee. Our guide to mortgagee sales explains how that process works and how to prevent it.

Even after default, communication helps. Many lenders prefer a negotiated outcome to enforcement, which is expensive and slow for them too.

Refinancing an expiring private loan

When the original exit has failed, refinancing to another private lender can buy time. The new lender will look at the property, the total debt, the reason the exit failed and the new exit plan. If you are in this position, read our page on an expiring private loan and act early.

Illustrative example

A business owner takes a nine-month bridging loan to buy a new warehouse before selling the old one. The sale campaign runs longer than expected, and at the seven-month mark there is no contract. She contacts the lender, shares the agent’s updated campaign report and asks for a three-month extension. The lender agrees with an extension fee. The old warehouse sells a month later, and the loan is repaid from settlement before the extended maturity date.

This example is illustrative only.

Setting yourself up from day one

The best maturity outcomes are planned at the start. Choose a term with a buffer, not one that only works if everything goes perfectly. Keep the lender informed. Begin your refinance application early. Have a second exit identified, as covered in our guide on what to do when the first exit slips.

A simple maturity checklist

Three months out, confirm the exit is on track and update the lender. Six weeks out, request a payout projection and confirm settlement dates with your refinancing lender or conveyancer. Two weeks out, request the formal payout figure and make sure discharge documents are being prepared.

Getting started

If your loan is approaching maturity and the exit is uncertain, or you are planning a new loan and want a sensible term, check your eligibility with no credit check. We will look at the property, the balance and the timing, and explain the options.

Start your enquiry today.