Important: Refinance your current loan to avoid a balloon payment prior to maturity date.  - Read more.

Refinancing a Balloon Mortgage with an Agency or HUD Multifamily Loan


Balloon payments are common in the world of commercial real estate loans. In fact, there are several multifamily apartment loan programs that include a balloon payment that is due at the end of the term. 

Refinancing is often the best way to handle a balloon payment on a multifamily apartment complex. Here, we explore what a balloon payment is and the process of refinancing a balloon mortgage.


What is a Balloon Payment?

A balloon payment describes a final, large sum due at the end of a mortgage.

If your mortgage is not covered by the total monthly payments and will require another large payment upon completion, this is a mortgage with a balloon payment.

There are some benefits to choosing a loan with a balloon payment. Balloon mortgages give borrowers lower interest terms and payments than many other traditional long-term loans, excluding HUD loan products. A shorter loan term is less risky to the lender and is reflected in a reduced interest rate.


How to Refinance a Balloon Payment

Can you refinance a balloon payment? Yes! Bookmark this blog for tips on how to refinance a balloon payment for the best financial outcome.

Watch Out for Prepayment Penalties

Many loan products have significant pre-payment penalties if you refinance or pay off the loan early in the mortgage term. Many borrowers choose to hold off on refinancing until it is closer to their loan term and the balloon payment is due. 


Refinance at the Right Time

Most balloon payment loans have a very small pre-payment penalty in the last 6 months of the term and there is generally no pre-payment penalty when you pay off the loan within 90 days of the loan maturing.

Start Preparing 6-12 Months in Advance

It is a good idea to start looking into refinancing options six to twelve months prior to the loan maturing and the balloon payment coming due. This timeframe gives the borrower plenty of time to fix needed repairs and make improvements for the appraisal, and for the Capital Needs Assessment to come back favorably. 


The Benefits of Refinancing a Balloon Mortgage

Refinancing a balloon mortgage allows the apartment owner to:

  • Distribute cash to investors.
  • Make capital improvements to justify increasing rents.
  • Invest in other projects to add to their portfolios.

Refinancing can enable you to invest money where it’s needed now, for a greater long-term outcome.


Refinance with an Agency or HUD Loan

There are many competitive loan products available for refinancing a balloon mortgage, including options that offer 30-to-35-year loan amortizations. 

Agency Refinancing Options

Both Fannie Mae and Freddie Mac offer short-term fixed rates amortized over 30 years with a balloon payment due at maturity. Some of these programs have an interest-only payment period option as well.

HUD Refinancing Options

A HUD 223(f) loan is a great option for borrowers that are looking to keep their assets in their portfolio for the long term. HUD 223(f) loans are fixed-rate and fully amortized for up to 35 years. The term may not exceed 75% of the remaining economic life of the property. This loan product removes future interest rate risk uncertainty. The maximum cash out allowed is 80%. 


Ask Our Expert Refinancing Team

LSG Lending Advisors can help you find the right agency or HUD loan to turn to when you’re refinancing a balloon mortgage. Once you’ve found your solution, we’ll help you gather the necessary documentation and work with HUD and agency-approved lenders to provide a quick and efficient term sheet for you and your partners to review.

Request a free phone consultation to make refinancing your balloon mortgage easy.

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