Legal Definitions - future-advance clause

A future-advance clause is a term in a security agreement that covers additional loaned amounts on present collateral or collateral to be acquired in the future. This clause is included in the agreement regardless of whether the secured party is obliged to make the advances. It is commonly found in an open-end mortgage or deed of trust, which allows the borrower to borrow additional sums in the future, secured under the same instrument and by the same security.

For example, let's say John takes out a mortgage on his house. The mortgage includes a future-advance clause, which allows him to borrow additional sums in the future, secured under the same mortgage. Later on, John decides to take out a home equity loan to pay for some renovations. Because of the future-advance clause, John doesn't need to sign a new security agreement for the home equity loan. The home equity loan is secured under the same mortgage as the original loan.

Another example is a business taking out a line of credit with a bank. The line of credit includes a future-advance clause, which allows the business to borrow additional sums in the future, secured under the same line of credit. This can be useful for businesses that need to borrow money periodically to cover expenses or invest in growth.

These examples illustrate how a future-advance clause can simplify the borrowing process and make it easier for borrowers to access additional funds without having to sign a new security agreement.