Due to most loans not having a fully amortizing schedule, a lump sum payment to an existing lender, called a balloon payment or a bullet, is paid when that loan matures. At that point, you’ll either need to sell, refinance, or pay the loan off with cash. The following are some important details that a borrower should be aware of as their loan matures:
- Contact your existing lender or review your loan documents to find out what the balance of your loan will be at the time of the payoff. Knowing the specific date in which the loan can be paid off is important, as lenders such as CMBS, may want loans to be paid off on specific days of the month.
- Once you know when it’s due and how much the balloon payment is, a strategic decision needs to be made concerning the payoff. A few options include the decision to refinance, pull cash out, or execute a long-term, fully-amortizing loan to eliminate dealing with a maturing loan again.
- Consult with your next lender or mortgage banker to talk through the different options. They will need property information such as historical operating statements, recent income and expense reports, a current rent roll, and third-party reports from the initial loan transaction.
Whether you have a fully stabilized property and are just looking for a rate and term refinance or you had a major tenant leave the property just before maturity and need something to bridge to permanent financing, it’s important to reach out to your mortgage banker early and start working on a strategy for your maturing loan.