A balloon payment is the unamortised balance that comes due in one sum when a loan reaches the end of its term. It exists whenever a loan is written on a term shorter than its amortization schedule, which is the ordinary structure in commercial lending: payments sized for thirty years, and a maturity in five, seven or ten.
- It is a date, not a risk in itself. The risk is what rates, values and lending appetite look like on that date.
- Underwrite the exit at maturity from the start, and know what the property would support if rates were higher than today's.
- Extension options are worth reading before they are needed. Most carry conditions, a fee, and a coverage test that has to be met.
- A seller's remaining term is a negotiating fact. A maturity twelve months out changes what a price conversation is about.
The same $1,012,000 loan, amortised over 30 years but written on a five-year term.
Ninety-four percent of the loan comes due on a single day, and the property will be refinanced or sold into whatever market that day belongs to.
Related terms
All termsLoan Maturity
Maturity is the date the loan must be repaid in full, regardless of how the property is performing.
FinanceAmortization
Amortization is the schedule by which a loan is repaid through level payments that cover interest first and principal second.
FinanceDSCR (Debt Service Coverage Ratio)
The debt service coverage ratio is net operating income divided by the annual loan payment.
Terms arrive with the writing.
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