An extension fee is a fee paid by the borrower to exercise an extension option on a bridge loan , typically 0.25% to 0.50% of outstanding principal per six-month or twelve-month extension. The borrower must also satisfy extension tests, usually a minimum debt yield , debt-service coverage, and an updated rate cap .
How are extension options structured?
Most bridge loans price as a 24- or 36-month base term plus one or two 6- or 12-month extension options. The borrower must give written notice 30 to 60 days before maturity and must satisfy extension tests calculated on a trailing-three-month or trailing-twelve-month basis.
What are typical extension tests?
Minimum debt yield (often 7.5% to 9.0% depending on asset class), minimum DSCR (often 1.10x to 1.25x on the actual rate), and a refreshed rate cap covering the extended period. Failing the test means no extension; the loan must be refinanced or paid off at maturity.
Are extension fees negotiable?
Extension economics are negotiable upfront. Sponsors with strong execution histories often push for one extension at no fee or for relaxed extension tests. The right time to negotiate is at term sheet, not three months before maturity when leverage is gone.
Sources
- Quarterly Survey of Commercial/Multifamily Mortgage Bankers Originations · Mortgage Bankers Association · 2026-Q1
- Multifamily Market Commentary · Fannie Mae Economic & Strategic Research · 2026-Q1