Most bridge loans carry one or two extension options of 6 to 12 months each, contingent on hitting debt-yield and DSCR thresholds, no events of default , and purchase of a renewed interest- rate cap . Extension fees typically run 25 to 50 basis points per option exercised.
Why are extensions structured this way?
Bridge loans assume the borrower will execute a value-add or stabilization plan and refinance into permanent debt. Extension options give the borrower contractual flexibility if the plan slips by 6 to 12 months while protecting the lender via tests that confirm the deal is heading toward stabilization, not deteriorating.
What if the test fails?
Most lenders allow extension-with-paydown: a partial principal reduction that brings combined debt yield back to threshold. Sponsors who anticipate test failure should engage the lender 60 to 90 days before maturity to negotiate the paydown amount and avoid scrambling at maturity.
Sources
- Quarterly Survey of Commercial/Multifamily Mortgage Bankers Originations · Mortgage Bankers Association · 2026-Q1