BALLOON PAYMENTS?

Are you ready for the balloon payment on your commercial property loan?

The past five years have seen drastic changes in the way banks lend against commercial property, and who they are willing to lend to. It’s no secret that since the financial crash in 2008 getting finance has become very tough. But, perhaps one of the lesser known impacts of the downturn was that the mega banks have swallowed up a lot of smaller institutions leaving a huge gap in the market. What may have been a satisfactory loan for the smaller lender is not acceptable to the larger banks, who steer clear of smaller deals in favour of larger returns with bigger loans.

Every week we’re hearing from people who, with a balloon payment looming, went to their bank of many years to refinance it, only to be shown the door. Let’s take a look at balloon payments and how to work with them.

What is a Commercial Balloon Payment?

Unlike a fully-amortized mortgage, a balloon payment has a shorter-term than amortization period. That means when the term is up, the borrower will be left with a balance due to the lender – which is due as a last payment called a “balloon payment.”

How Does a Balloon Payment Work?

Balloon mortgages generally range in terms up to seven years, but have amortizations up to 30 years. What this means is that the lender will have you payback the mortgage over the course of up to 7 years, using amounts that would be associated with paying back the loan over the course of 30 years. By calculating your commercial real estate loan payments in this manner, it helps reduce the amount that the borrower/owner of the commercial real estate pays in monthly payments. Since not many business owners or real estate investors have the cash needed to make the final “balloon payment” most borrowers will either refinance their balloon mortgage before the balloon payment is due, or would have sold the commercial real estate.

Risks of a Commercial Balloon Mortgage?

The biggest risk associated with a commercial real estate balloon mortgage is not being able to refinance the mortgage before the final balloon payment is due. This is where a lot of companies are finding themselves adrift when their current bank says no.

Advantages of a Commercial Balloon Mortgage?

The biggest advantage of obtaining a balloon mortgage is first and foremost the access to capital to purchase the commercial real estate. Without a balloon mortgage structure, many borrowers wouldn’t have had enough of a down payment, or the ability to service their monthly debt payments associated with the loan. In fact, nearly 90% of small businesses that own commercial real estate and have a mortgage are using some sort of balloon mortgage financing.

When the bank says no.

A lot of people are finding themselves unable to re-mortgage with their existing lender thanks to changes since the crash. There are options out there, you just need to know where to look and, more importantly, how to apply. We’ve got you covered.

When a balloon mortgage is due, and you can’t refinance it into a fixed rate or fully-amortized loan, you need to work fast to find an alternative source of funding to avoid a short-sale or foreclosure. If you have a commercial balloon payment that will soon be coming due, and need help finding the right lender to refinance your commercial real estate, please reach out and we’ll help you navigate the financing process.

WHEN THE BIG BANKS SAY NO, FITUFINANCE CAN HELP!