An end loan is used to pay off any dues or balance left in any short-term construction loan taken. Until the construction comes to an end, payment of the principal amount is deferred. Once the construction is completed, the loan can get amortized. Yet, an end loan ensures that there is a chance of paying interests during a period of time.
A lender often creates a construction loan that is combined with an end loan. During construction, a borrower has to pay interest to the lender. Toward the end, both the principal and interest need to be paid.
The end loan has many benefits for both the borrower and the lender. It helps the borrower to extend the time period of paying on the interest for, say, anywhere between 1-5 years. This is a valuable advantage for a borrower who is involved in the construction of a commercial building as leasing out each unit is not such an easy task. That time is essential for the borrower or the owner of the property to come up with different ideas for revenue streams so that the end loan can easily be paid off as per the terms and conditions of the contract.
This loan also tends to improve the working relationship between the borrower and the lender. The interest rate of the end loan could be a little lower than the original construction loan. This could be because the value of the property must have appreciated over a period of time since the construction is getting completed on schedule. The borrower may have the option of purchasing another loan from somewhere else to kill off the construction loan. Yet, the lender could offer a more tempting interest rate so that the borrower does business with them.
However, as with loans and many other things in life, the end loan has its cons as well. The loan begins to amortize almost immediately. So, even if the borrower opts to pay interest for a period of time, the loan amount is expected to increase by the time the project is over. Moreover, end loans can often prove to be a short-term strategy since one relies on the temptation of the end loan and construction loan being combined together as a money saver. However, if interest rates change drastically for the worse during the construction period, then the loan amount to be repaid increases.
As a result, smart borrowers will tend to negotiate with lenders about looking out for the end loan only after the project is completed, taking only construction loans into account in the meanwhile. They will also compare rates of other lenders before selecting the most preferred one. This requires not only taking some time off for it and patience but also a great understanding of your projects as well as finances before you can come up with an offer no can refuse.
