Refinance a maturing balloon loan

The decision in one line

Find out whether a new loan, sized at today’s rates on your current NOI, covers your payoff. If it does, shop the permanent lenders below. If it does not, you have a gap to fill, and the choice becomes how to fill it at the lowest cost.

Balloon loans are the norm, not the exception. In the 2025 HMDA data on apartment loans, 75.2% carried a balloon payment², with a 120-month (10-year) median term², far shorter than a full amortization schedule. Every one of those loans comes back to market.

Step 1: size the gap

A permanent lender sizes the new loan by the lower of two tests: a loan-to-value limit and a debt service coverage limit (DSCR = net operating income divided by annual debt service). When rates are higher than when you borrowed, the coverage test usually binds first.

Illustration. A 40-unit building owes a $4,200,000 balloon. Its NOI is $360,000. At an illustrative 6.75% cap rate the appraisal comes in near $5,333,000.

Test (illustration)	Assumption	Maximum new loan
75% of value	$5,333,000 appraisal	$4,000,000
1.25x coverage, 30-year amortization	6.50% rate	about $3,797,000
1.25x coverage, 25-year amortization	7.00% rate	about $3,396,000

The coverage test binds, so the shortfall is about $403,000 before closing costs on the 30-year schedule and about $804,000 on the shorter bank-style schedule. The amortization schedule alone moves the answer by roughly $400,000, which is why a lender’s amortization matters as much as its rate in a tight refinance. Fannie Mae small loans test at 1.25x min DSCR⁴. Freddie Mac Conventional Small tests at 1.25x minimum amortizing DCR⁵ on 30-year amortization⁵.

Run your own numbers in the refinance gap calculator.

Step 2: pick the path for your result

Your result	First move	Why
New loan covers payoff and costs, stabilized apartments	Agency small loan (Fannie Mae or Freddie Mac)	Long amortization and non-recourse terms
New loan covers payoff, low leverage, any property type	Life company, then bank	Low-leverage loans get the tightest pricing
New loan covers payoff on retail, office, mixed-use or industrial	Bank or credit union, then CMBS conduit	Local lenders know the market; conduits size on cash flow
Small gap and you have cash	Pay down at closing	Cash is the cheapest gap capital there is
Gap because occupancy or NOI dipped	Bridge loan, then refinance once stabilized	Bridge sizes on the business plan, not today’s income
Gap because value fell	Preferred equity or a negotiated paydown	Senior lenders will not lend through a lower value
Existing loan is HUD-insured	FHA 223(a)(7)	Refinances within the program

Step 3: close in the open window, not the penalty period

Most permanent loans carry a prepayment premium until near the end of the term, then open. Closing inside the open window means you pay no premium.

• Fannie Mae: Typically no premium on a full prepayment from the last calendar day of the fourth month before the maturity month⁶.
• Freddie Mac: No premium in the final 3 calendar months before scheduled maturity⁷.
• Freddie Mac Conventional Small: Yield maintenance until securitization, 2-year lockout, then defeasance; open final 90 days⁵.

If you need to close before the window opens, price the premium against the cost of waiting. Yield maintenance shrinks when Treasury yields sit above your note rate, and the 10-year Treasury was 4.94% (October 30, 2026)⁸. An older low-coupon loan may cost little more than the documents’ minimum to repay. The prepayment penalty calculator estimates it.

Where each option wins and loses in a maturity

Agency small loans win on stabilized apartments. Fannie Mae small loans go up to $9 million nationwide⁴ at 80% max LTV⁴. On recourse: Non-recourse, with standard carve-outs for fraud and bankruptcy⁴. They lose when occupancy is soft. The DUS term sheet asks for this: Stabilized occupancy, typically 90% for 90 days before funding⁹. Freddie Mac Conventional Small is generally $2 million to $10 million⁵, so a smaller balloon goes to Fannie Mae or a bank. Freddie also drops its refinance test in one case: No refinance test at 1.40x amortizing DCR or higher and 60% LTV or lower⁵.

Banks and credit unions win on speed, relationship and the property types the agencies do not take. They lose on amortization and recourse: most banks want a personal guarantee, and the new loan often matures again well before it amortizes. Conditions have loosened: Banks generally eased CRE standards in Q2 2026, with demand basically unchanged (Fed SLOOS, July 2026)¹⁰.

Life companies win when your loan is small against value. They lose when you need leverage.

CMBS conduits win on cash-flowing retail, office, hotel and industrial where a bank will not stretch, because they size on the property. They lose on prepayment flexibility and on small loans.

FHA 223(a)(7) eligibility: Only loans already FHA-insured¹¹. Loan amount: Lesser of original principal, existing debt plus costs, or the amount 90% of NOI supports¹¹. Term: Re-amortize within the remaining term or extend up to 12 years¹¹.

Bridge loans win when the problem is temporary. They lose on cost and add a second refinance.

Preferred equity fills a true value gap without a sale. It loses on cost, and it usually needs the senior lender’s consent.

Who else is in your position

Maturities are not spread evenly across lenders. MBA’s survey of 2026 maturities found $396 billion of bank and thrift loans (21% of their book)¹ coming due, against $39 billion held or guaranteed by Fannie Mae, Freddie Mac, FHA and Ginnie Mae (4%)¹ (all holders). Banks hold the largest share of the loans coming due, so bank refinancings and extensions drive most of this market. On the CMBS side, Trepp counts $61.1 billion¹² of private-label loans reaching hard maturity in 2027, of which $22.2 billion¹² is office.

Documents to have ready

• Current mortgage statement, a payoff letter request and the note’s prepayment section.
• Trailing twelve-month operating statement and the last two full years.
• Current rent roll with lease dates, and for commercial tenants, the leases.
• Personal financial statement and schedule of real estate owned for each guarantor.
• Property insurance declarations and the most recent tax bill.
• Any recent appraisal, property condition report or Phase I. For the federal liability protection, the timing rule is: A Phase I must be done within 1 year before acquisition, with interviews, lien and records searches and site visit updated within 180 days¹³, and lenders apply their own freshness limits.

Pitfalls that sink maturity refinances

1. Waiting for rates to fall. If the balloon arrives first, you lose the choice of lender. Lock in a plan, then improve it.
2. Using last year’s NOI. Lenders underwrite their own NOI with a vacancy factor. Underwritten operating expenses include a replacement reserve, whether or not it is funded³.
3. Ignoring the extension terms already in your note. Some loans carry extension options with tests. Read them before you call the lender.
4. Treating an extension as a solution. An extension buys months, not a new capital structure. One public small-balance lender’s filing shows that loans it extended for borrowers in financial difficulty gained a weighted average of 8.5 months¹⁴.
5. Forgetting the cash for closing. Appraisal, third-party reports, lender fees, title and reserve deposits come due even when proceeds just cover the payoff.

Ready to compare lenders on your actual numbers? Send the payoff, NOI and rent roll through the form below.