Money & Finance › Commercial real estate lending › Commercial real estate loans: how income property is financed
Balloon payments, amortization and interest-only periods
· Concept
Fact, law or dataA rule, statute, definition or measured number.
Most property loans never pay themselves off: payments follow a long schedule, and the remaining balance comes due in one lump at maturity.
See it on the Money & Finance map →How it works
Amortization is paying down principal with each payment; the term is when the loan comes due. CRE loans pair a long schedule, 25–30 years, with a short term, 5–10 years. Example: $10 million at 6% on 25-year amortization costs about $64,400 a month, and about $7.6 million is still owed at year 10: the balloon. With interest-only payments, the full $10 million is due. Either way, the owner must refinance or sell at whatever rates and values exist then.
Why it matters
Balloons tie every owner to the credit market at maturity. If rates rise or values fall, a building that pays its bills can still fail to refinance: a maturity default.
Think of it like
Like a lease expiring: the space may be fine, but the new terms depend on the market that day.
Facts, rules and data
Standard amortization math, loan documents, and MBA maturity surveys: about $957 billion of CRE mortgages was scheduled to mature in 2025 and about $875 billion in 2026.
Connections (3)
▸Archetype: a bank refinance of a suburban office building ends with Balloon payments, amortization and interest-only periodsFact, law or data
The connection
The new loan typically amortizes over 25 years but matures in 5–10, so a large balance remains. The owner will face the same question again: refinance or sell, at whatever rates, values and office demand exist then. Big tenants' lease expirations near the maturity date make that next refinance harder.
When and why
In nearly every US bank office loan; the maturity date is set at closing.
How we know
Loan documents and amortization schedules; MBA maturity surveys count the balloons coming due each year.
Debates and risks
What suburban office values and lending terms will be at the next maturity is unknown.
▸Balloon payments, amortization and interest-only periods pile up into The CRE maturity wall and maturity defaultsFact, law or data
The connection
Because almost every CRE loan ends in a balloon, loans written in the same years mature together. Heavy lending at low rates in 2015–22, plus extensions granted in 2023–24, stacked up maturities: MBA counted about $957 billion for 2025 and $875 billion for 2026. Each needs a refinance, a sale or another extension.
When and why
Across US commercial and multifamily lending, especially at banks and in CMBS, from 2023 onward.
How we know
MBA's annual commercial and multifamily loan maturity surveys and Trepp's CMBS maturity data.
Debates and risks
How many extended loans will be extended again, and how many will default, when they come due.
▸Balloon payments, amortization and interest-only periods differ from fully amortizing Mortgages and the 30-year fixed-rate loanFact, law or data
The connection
Before the 1930s, US home loans looked like today's CRE loans: short terms, interest-only or partly amortizing, ending in a balloon. In the Depression, borrowers could not refinance. The HOLC and FHA replaced them with long, fully amortizing loans that became the 30-year mortgage. Commercial loans kept the balloon.
When and why
Home Owners' Loan Corporation (1933) and Federal Housing Administration (1934); the 30-year term became standard by the 1950s.
How we know
Federal histories of the HOLC and FHA, and economic research on the 1930s mortgage crisis.
Debates and risks
Economists debate whether balloons make CRE crises worse by forcing refinancing in bad markets, or whether longer loans would just shift risk to lenders.