Balloon Payment
A balloon payment is the remaining loan principal due in a lump sum when a commercial mortgage matures. Because commercial loans typically carry 5–10 year terms but amortize over 25–30 years, most of the original balance is still outstanding at maturity and must be refinanced, paid off, or the property sold.
The balloon is the central refinancing risk in commercial real estate: if rates have risen or the property's income has fallen by maturity, the new loan may not cover the balloon, forcing an equity infusion or sale.
Borrowers manage balloon risk by starting refinance conversations 12–18 months before maturity and by negotiating extension options at origination.