Future Advance – Definition

Cite this article as:"Future Advance – Definition," in The Business Professor, updated September 30, 2019, last accessed August 13, 2020, https://thebusinessprofessor.com/lesson/future-advance-definition/.

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Future Advance Definition

A future advance is a mortgage clause that allows a borrower to get additional money to increase a mortgage loan. Future advance does not require you to adjust borrowing terms on the current mortgage contract.

If the clause is included in the original mortgage contract, it means that you can obtain additional funds using the same terms on the initial contract. However, future advance clauses sometimes may or may not contain some contingencies that qualify a borrower for future advances.

A Little More on What is a Future Advance

Future advances may apply to a number of loan products. However, the most common is the mortgage loan. A future-advance mortgage provides you with means to buy property using part of your loan and then accessing more money in the future, to finish paying for the property. When it comes to a loan mortgage, the property in question will act as collateral, for the future advance you take.

How Future Advance Works

For you to take a mortgage loan, it means that your house will act as collateral for the loan. The same house will also be collateral for any other loans you take in the future. In other words, it secures future advances.

In addition, a future advance mortgage allows you to take mortgage plus a home-line equity line of credit simultaneously.

Revolving Credit versus Non-Revolving Credit

Generally, the revolving line of credit idea is based on the availability of funds for future advances. It is also possible to integrate future advance clauses in non-revolving loans. The process allows borrowers to separate their approved funds to enable them to save on the interest rates costs, hence ensuring cash flow management.

Revolving Credit

A revolving credit account allows the borrower to access money up to a certain limit as specified in the clause at any given time. Revolving credit accounts can be either of the following:

  • Credit card account
  • Line of credit account

Note that in each of the accounts, there are revolving outstanding funds that the borrower relies on instead of obtaining the money in a lump sum.

Additionally, revolving credit accounts always have cash advances in provisions. Lenders usually have specific rules that govern cash advances limit withdrawals. It allows borrowers to access small cash advance fees by making withdrawals directly.

Non-Revolving Credit

Non-revolving credit (business loans) also has future advance clauses. Another term for a business with future advance clauses is “term loans.” Businesses may at some point require future advance clauses to help them achieve the following:

  • Support construction development
  • Support ongoing capital investment projects

Just like revolving credit account, non-revolving credit also has a maximum credit limit for borrowers. Borrowers can only rely on the set principal amount to access a given loan product.

Benefits of Future Advance 

  • When it comes to building a house, a borrower can easily access the first loan to acquire land and the second one to construct the house.
  • Where a borrower decides to use a future-advance mortgage to construct a home through the equity line of credit, it becomes cheaper to the borrower than using a credit card.

Limitations of Future Advance

  • It is easier for the lender to seize the house in the event that the borrower defaults on repayments.
  • Mortgage lenders in some states do charge the borrower expenses such as the attorney’s fees if they take him or her to court.

References for “Future Advance”

https://www.investopedia.com/terms/f/future-advance.asp

www.businessdictionary.com/definition/future-advances-clause.html

https://thelawdictionary.org/future-advances-clause/

https://www.translegal.com/legal-english-dictionary/future-advance

https://thebusinessprofessor.com › Future Advances and Security Interest

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