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Caveat loans are written for one to six months because they are meant to bridge a specific event. When the event slips, an extension is the ordinary fix. It works best when it is treated as a one-off and asked for early.
How an extension works
The borrower asks, in writing, before the term ends. The lender checks three things: that the first mortgage is up to date, that the combined LVR still works once extra interest is added, and that the exit is still believable - a contract exchanged, a refinance approved subject to valuation, a settlement date moved but confirmed. If so, a short variation is signed, the extension fee is paid or capitalised, and a new end date is set. The caveat stays where it is; nothing is re-lodged.
What it costs
An extension fee plus interest for the extra months. Because caveat loan interest is usually prepaid, the lender may want the additional interest paid upfront or added to the balance. Adding it to the balance increases the LVR, so a loan that started near the ceiling has less room to extend.
Compare that with the alternative. Running past the term without an agreed extension triggers the default rate, which can cost more in a fortnight than the extension fee does in total. See what happens if I cannot repay on time.
When to refinance instead
If the original plan was three months and it is now clear the real need is nine, a second extension is the wrong tool. A registered second mortgage prices from around 0.975% a month against 1.65% or more for a caveat, and runs up to two years. The settlement takes a little longer because the first mortgagee’s consent is usually sought, so start it while the caveat loan still has time to run. See caveat loan vs second mortgage.
Build the margin in at the start
The cheapest extension is the one never needed. If the sale is expected to settle in eight weeks, take a four-month term. Most agreements charge interest for a minimum period regardless, and the cost of an unused month is small next to an extension fee or a day of default interest.
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Get matched with a funderFAQ
How much does a caveat loan extension cost?
Typically an extension fee, often around 1% to 2% of the balance for a further term, plus interest for the extra period, which is commonly prepaid again. The agreement or the lender will give the figure in dollars.
Is an extension guaranteed?
No, unless the agreement contains an extension option, and few do. It is at the lender's discretion and depends on the security position and whether the exit still looks real.
How many times can a caveat loan be rolled over?
There is no fixed limit, but each rollover adds fees and erodes equity. After one extension, the better question is which longer facility should replace it.