A borrower called me in September about a retail and office building in central Georgia. His loan matures in seven months, the balloon is $3 million, and his bank just told him it will not renew at the current rate. He locked in around 4.25% in 2019. Today he needs to refinance a maturing commercial loan into a market that prices closer to 7%.
He is not alone. The Mortgage Bankers Association estimates that $875 billion of commercial and multifamily mortgages, about 17% of the $5.0 trillion outstanding, mature in 2026. Most of those loans were written when money was cheap. This guide covers how to refinance a maturing commercial loan, what lenders will actually underwrite, and what to do if the numbers do not work.
What you’ll learn
- When to start the refinance process and why waiting is the most expensive mistake
- How higher rates shrink your loan proceeds and create a payoff gap
- Your realistic options: refinance, extend, bridge, bring cash, or sell
- What I need from you to get a term sheet quickly
Why Is Refinancing a Maturing Commercial Loan Harder Right Now?
Rates reset higher and your income did not. The Federal Reserve raised its target range to 3.75%-4.00% on September 16, 2026, its first increase in years. If you want the full rate picture, I broke it down in how the Fed hike affects commercial real estate loans.
Two things happen when a 4% loan comes due. The new payment jumps, and lenders size the new loan on that higher payment. The loan you can get is often smaller than the loan you owe.
Commercial mortgages typically run 5 to 10 year terms on a 25 to 30 year amortization. That structure leaves a balloon at maturity, and there is no automatic right to renew. Your current lender can say no.
How Much Will You Be Able to Borrow? The DSCR Math
Debt service coverage is where most maturity refinances break. Most lenders want a minimum 1.20x to 1.25x DSCR on stabilized income, and a bank will typically cap leverage at 65% to 75% of value.
Here is a simple example. Say your building produces $290,000 of net operating income and you owe $3,000,000.
| Item | Number |
|---|---|
| Net operating income | $290,000 |
| Required DSCR | 1.25x |
| Maximum annual debt service | $232,000 |
| Payment constant at 7.0%, 25-year amortization | 8.48% |
| Maximum new loan (DSCR test) | about $2,735,000 |
| Payoff gap on a $3,000,000 balance | about $265,000 before closing costs |
Value matters too. At a 6.75% cap rate that same NOI supports roughly a $4.3 million value, and 70% of that is about $3.0 million. So in this case DSCR, not LTV, is the binding constraint. Run both tests before you talk to any lender. I walk through the calculation in my guide to net operating income and how lenders calculate it.
From a recent deal: I recently worked on a 12-unit mixed-use building in the Southeast with a $2.4 million balloon coming due in five months. The existing bank offered a one-year extension at a higher rate with a 1% fee, but the borrower wanted permanent financing. We placed a 10-year fixed loan at 65% LTV with two years of interest-only. It cost him about 250 basis points more than the old loan, and the one-year extension would have cost him a second closing in 2027 at what could be an even higher rate.
Looking at a balloon payment you cannot cover? We structure these refinances nationally. Schedule a 15-minute call →
What Are Your Options When a Commercial Loan Matures?
You have more choices than “refinance or lose the building.” Here is how I rank them, from least to most disruptive.
| Option | Best When | Watch Out For |
|---|---|---|
| Extension with current lender | Property is stabilized and you need 6-24 months | Fees of 0.5%-1%, higher rate, new paydown requirement |
| Permanent refinance | DSCR and LTV both pass at today’s rates | Prepayment penalty on the old loan, 45-90 day timeline |
| Bridge loan | Occupancy or NOI is temporarily low | Higher rate, short term, you still need an exit |
| Cash-in refinance | Gap is $100K-$500K and you have liquidity | Ties up capital that could go elsewhere |
| Sale | Negative leverage and no path to a clean refinance | Taxes, timing, and a soft buyer pool |
Permanent refinance
This is the cleanest outcome if the property qualifies. We work with lenders across banks, credit unions, CMBS, life companies, and agency programs for multifamily, so we can usually price several paths at once. Agency multifamily can go up to 80% LTV, and SBA 504 can reach 90% for owner-occupied buildings. My article on SBA 504 refinance for owner-occupied buildings covers that route.
Bridge financing
If the property is not stabilized, a short-term loan buys time to fix occupancy and then refinance out. I explain how these work in commercial real estate bridge loans. Expect higher pricing and an exit plan that a lender will actually believe.
Cash-in refinance
When the gap is modest, bringing cash to closing can be cheaper than a bridge. Some borrowers do a partial paydown plus a new first mortgage. The reverse, pulling equity out, is a different conversation, which I cover in cash-out refinance on commercial property.
When Should You Start the Refinance Process?
Start 9 to 12 months before maturity. For complex properties, start 12 to 18 months out. That gives you time to fix occupancy, renew key leases, order an appraisal, and shop the deal more than once.
A typical refinance takes 45 to 90 days from application to closing. Closing costs usually run 1% to 3% of the loan, and an appraisal can cost $3,000 to $10,000 or more. Borrowers who wait until 60 days before maturity have no leverage with the new lender or the old one.
Read your existing loan documents first. Check the prepayment terms, because defeasance or yield maintenance can add a real cost to a payoff. I cover this in commercial loan prepayment penalties.
What Do Lenders Need to See?
A complete package gets a faster term sheet. Send this on the first day:
- Current rent roll and trailing 12-month operating statement
- Last two years of property tax returns or financials
- Your existing loan statement and maturity date
- Copies of major leases and expiration dates
- Personal financial statement and schedule of real estate owned
Where this trips people up is the operating statement. If expenses are sloppy or income is not documented, the lender will underwrite a lower NOI than you expect. Clean it up before you submit.
What If the Numbers Do Not Work?
Talk to your current lender early, before default. Many lenders prefer a modification or short extension to a foreclosure. Offer a paydown, additional collateral, or a cash-flow sweep in exchange for time.
If the property is underwater on a leverage basis, the honest answer may be to sell, or to bring in equity. Better to know that nine months out than three weeks out. I would rather tell you a deal does not work today than watch you burn your maturity runway.
Frequently Asked Questions
Can I refinance a commercial loan before it matures?
Yes. Most borrowers do, but check your prepayment terms first. A defeasance or yield maintenance clause can make an early payoff expensive.
What happens if I cannot pay off a balloon payment?
The loan goes into maturity default. Your lender may extend, modify, or begin enforcement. Start talking to them well before the maturity date.
How long does it take to refinance a commercial property?
Plan on 45 to 90 days. Complex properties, environmental issues, or an unstabilized building can take longer.
What DSCR do I need to refinance a commercial loan?
Most lenders want 1.20x to 1.25x on stabilized income. Some programs go lower with stronger leverage metrics or a larger down payment.
Is it better to extend or refinance a maturing commercial loan?
Extend if you need a short window to lease up or wait for rates to come down. Refinance if the property qualifies and you want to remove the maturity risk.
Ready to finance your maturing commercial loan?
We’re a commercial mortgage brokerage serving investors and business owners nationally, with active lender relationships across bank, credit union, CMBS, life company, agency, SBA, and bridge programs. Send us your scenario and we’ll respond within one business day with realistic terms.
This article is for informational purposes only and does not constitute financial, legal, or tax advice. Loan terms, rates, and availability vary by borrower, property, and market conditions. Consult Willowbrook Capital for scenario-specific guidance.