Commercial real estate is a diverse field, and you have likely come across various concepts, like balloon payments. A balloon payment is a general borrowing strategy that exists in other areas as well but uniquely applies to mortgage-related matters.

Since you are a commercial real estate investor, knowing about balloon payments for commercial loans will be beneficial for you. Hence, we have written this short article to help you understand its details and specifications.

What are Balloon Payments?

Balloon payment refers to a loan payment strategy in which the borrower pays a low monthly installment each month until the loan matures, meaning the total loan payment becomes due. At this point, the borrower will pay back the remaining lump sum or the balloon amount to the lender.

Balloon payments are often used by borrowers as a refinancing strategy, especially if they are anticipating business growth or income at a later point and have low liquidity up until then,

How Do Balloon Payments Work in Commercial Real Estate?

Balloon payments come within mortgage refinancing in commercial real estate. A commercial real estate investor may opt for balloon payment refinancing when they can’t afford regular mortgage payments on their commercial loan.

Therefore, they opt for this solution and are legally required to mention this information clearly to the person who buys their commercial real estate property.

Should You Purchase Commercial Real Estate With Balloon Payment Refinancing?

As a commercial real estate investor, you need to have your finances planned properly at all times. If you have a stable flow of income from your other investments and/or a regular job, you can afford to purchase a commercial property with balloon payment refinancing.

You will simply need to keep the amount of the final payment in mind and ensure you have that sum when the loan becomes due.

Benefits and Risks of Balloon Payments

Balloon payments come with their respective set of benefits and risks that you need to know about.

Benefit

The lower mortgage payment amount during the regular course will help you use the money that would have been otherwise spent on loan payments to make other investments. A full commercial real estate investment portfolio has balanced risk, and the higher monthly returns will add to the funds you have kept aside to make the final payment.

Risk

Balloon payments for commercial loans are risky if you have a less consistent income stream or are not earning enough to have the required amount by the time the loan matures. Therefore, evaluate your financial position carefully before opting for this option.

Conclusion

To sum up, balloon payments are an interesting refinancing strategy for commercial loans and can be beneficial if you have a strong financial position. As a commercial real estate investor, you should always consult with your financial consultant and your commercial real estate broker before making any decisions.

If you are looking for reliable commercial real estate brokers in Rio Grande Valley, please contact us. CHRE has several years of brokerage experience for commercial real estate in the region and will help you make the best possible commercial investments.