Most commercial real estate loans are not a 30-year mortgage that quietly pays itself off. They carry a balloon: the loan amortizes on a long schedule — say 25 or 30 years — but the term is only 5, 7, or 10 years. At the end of that term the entire remaining balance comes due all at once. You either refinance it, sell the property, or hand over the keys. There is no fourth option.
The date is printed in your loan documents, so this is the most predictable deadline in your business — and also the one owners most often sleepwalk into. The danger isn’t the balloon itself; it’s treating the maturity date as far away, then scrambling 60 days out into a market that moved, with a property that may no longer qualify the way it did when you signed. This playbook is about starting early enough that the balloon is a formality instead of an emergency.
What a balloon actually is — and why commercial loans have them
A balloon is the gap between how a loan is amortized and how long its term runs. A 30-year amortization on a 7-year term means your monthly payment is calculated as if you had 30 years to pay it off — but in year seven, the large unpaid balance is due in a single payment. On a $2.5M loan you might still owe well over $2M on that date.
Commercial lenders build loans this way on purpose. It keeps them from being locked into one interest rate for decades, and it forces a periodic re-underwriting of the property and the borrower. That’s fine — it’s the normal structure. What it means for you is simple: every commercial loan you take is really a loan plus a future refinance you’ve already agreed to do. Plan for the refinance the day you close, not the month it’s due.
The timeline: start 12–18 months out, not 60 days
A clean commercial refinance is not a two-week errand. A new lender needs current financials, a fresh appraisal, an updated rent roll, and time to underwrite — and if your first choice says no, you need runway to find a second. Sixty days is not runway. It’s the window in which you accept whatever terms you can get.
- 18–12 months out: pull your loan docs and confirm the exact maturity date, the payoff balance, and any prepayment penalty or extension clause. Start watching where market rates sit versus your current coupon.
- 12–9 months out: get your books clean. Assemble trailing 12-month income, a current rent roll, and a realistic view of what the property appraises for today — not what you paid or hoped.
- 9–6 months out: take the deal to lenders. This is early enough that you have leverage and choices, and early enough to fix a problem — a soft occupancy number, a lapsed lease — before it sinks the file.
- 6–3 months out: have a term sheet in hand and lock or hedge the rate if the option exists. Close with margin to spare.
- Inside 60 days: if you’re only starting here, you’re negotiating from weakness. It can still work — but you’ve given away every advantage.
What goes wrong when you wait
- The rate environment moved against you. You signed at a low coupon in an easy market; you refinance into a higher one. The payment resets upward and there’s nothing to negotiate — it’s just the market you showed up to.
- Your DSCR slipped. Expenses crept up, a tenant left, or insurance and taxes jumped. The property that comfortably qualified at signing no longer covers the new, higher payment — so lenders offer less, or pass.
- You’re at the lender’s mercy on an extension. A short forbearance or extension may exist, but on their terms: a higher rate, a fee, a paydown, a personal guarantee. It buys weeks, not a solution.
- Forced sale. The worst case. Unable to refinance or extend, you sell into whatever market exists on the deadline — often the exact wrong time — and take the price the clock hands you.
What a payment reset looks like
Illustrative only — your actual numbers depend on the property, the market, and your lender. But the shape is real: a $2.5M loan maturing today, rolling off an old coupon into a higher-rate market. This is why the date matters more than the balance.
| Original loan amount | $2,500,0007-year term, 30-year amortization |
|---|---|
| Old coupon (at signing) | ~5.0% |
| Balance due at maturity | ~$2,180,000the balloon — due in one payment |
| Payment on the old loan | ~$13,400/mo |
| New market rate (refi today) | ~7.0% |
| Payment on the refinanced loan | ~$16,300/mo~$2,900/mo higher — the reset |
That ~$2,900/month jump — roughly $35,000 a year — is the reset the rate market handed you, and it exists whether you refinance early or late. What starting early buys you is the chance to protect against it: a rate lock, a rate cap, or a bridge-to-perm that holds terms while you stabilize. What starting late guarantees is that you take the reset plus whatever penalty a deadline adds. The rate move you can’t control; the scramble you can.
Refinance early vs. wait for the notice
Same property, same balloon, same market — the only variable is when you start. The difference is entirely in your leverage.
Refinance early (12–18 months out)
- You have time to shop multiple lenders and let them compete.
- You can fix a weak number — occupancy, a lease, deferred maintenance — before it’s underwritten.
- You can lock or cap the rate when the market gives you a window.
- A “no” from one lender is a detour, not a crisis — you still have runway.
Wait until the maturity notice
- You take the terms in front of you because there’s no time to find better.
- Any problem in the file is now unfixable on the clock.
- An extension or forbearance is on the lender’s terms — fee, higher rate, paydown.
- If nothing closes in time, a forced sale at the market’s price becomes the exit.
Common questions
- What is a balloon payment on a commercial loan?
- It’s the large lump-sum balance that comes due at the end of a commercial loan’s term. Most commercial loans amortize over 25–30 years but have a term of only 5, 7, or 10 years, so the remaining principal — often most of the original amount — must be paid off or refinanced in a single payment on the maturity date.
- How early should I start refinancing before my loan matures?
- Start 12–18 months before the maturity date, not 60 days. A commercial refinance requires current financials, a fresh appraisal, and underwriting time, and if your first lender declines you need runway to find another. Starting early is what gives you choices and negotiating leverage instead of accepting whatever terms are available at the deadline.
- What happens if I can’t refinance before the balloon comes due?
- You have three options and all of them get worse under time pressure: refinance (if a lender will fund you), sell the property, or negotiate an extension or forbearance from your current lender on their terms. If none of those close in time, the loan is in default and a forced sale — at whatever price the market offers on that date — becomes the likely outcome.
- What is a loan extension or forbearance?
- It’s a short-term agreement from your existing lender to push the maturity date out rather than call the balance due. It can buy weeks or months, but it’s granted on the lender’s terms — typically a fee, a higher rate, a required paydown, or a personal guarantee. It’s a bridge to a real solution, not a substitute for one, and you have far more leverage to negotiate it before you’re in distress.
- Does a rate cap or rate lock help with a maturing loan?
- Yes, when you start early enough to use one. A rate lock holds a quoted rate while you close, protecting you if the market moves up in the interim. A rate cap limits how high a floating rate can go over the life of the new loan. Both are tools you can only reach for with time on your side — they’re unavailable to an owner scrambling inside the final 60 days.
- My property’s DSCR dropped since I got the loan. Can I still refinance?
- Possibly, but on tighter terms — a lender sizes your new loan against current cash flow, so a lower debt-service coverage ratio usually means a smaller loan, a higher rate, or a required paydown to make the numbers work. This is exactly why starting 12–18 months out matters: it gives you time to lift occupancy, re-sign a tenant, or trim expenses and repair the coverage number before it’s underwritten.
- Can I just keep making my monthly payment past the maturity date?
- No. The monthly payment and the maturity are separate things — staying current on the payment does not stop the full balance from coming due on the maturity date. When that date passes without a payoff or refinance, the loan is in default regardless of your payment history, which is why the date, not the payment, is the deadline to plan around.