Loan Amortization and Balloon Loans: How to Read the Table, Plan for the Balloon, and Time a Refinance

Amortization is the schedule your monthly payment is calculated against. Loan term is how long the agreement actually lasts before the lender wants its money back. On a home loan the two usually match: borrow over 30 years, repay over 30 years, and the balance hits zero on the last payment. Commercial lending usually separates them.

A typical conventional commercial mortgage runs a term of 5 to 10 years, with payments calculated as though the loan lasted 20 to 25 years. Because the amortization schedule runs longer than the term, only a small part of the principal is paid off by the time the term ends — and the rest comes due in one lump sum. That lump sum is the balloon payment.

Lenders write loans this way because a shorter term lets them reprice the risk and re-underwrite the property every few years instead of locking in a rate for decades. Borrowers accept it because the longer amortization keeps the monthly payment lower, which keeps cash flow — and the debt service coverage ratio — healthier in the early years. The trade is that the debt is not gone when the term ends: you refinance it, sell the property, or pay it off.

One exception: SBA-backed loans can amortize fully over up to 25 years with no balloon.

An amortization table has one row per monthly payment, and every row has the same four numbers:

• Payment — the same every month on a fixed-rate loan.
• Interest — the current balance multiplied by the monthly interest rate.
• Principal — whatever is left of the payment after interest.
• Remaining balance — the old balance minus the principal portion.

The pattern to look for: the payment never changes, but the split inside it does. Early on almost everything goes to interest, because the balance is at its largest. As the balance falls, the interest portion shrinks and the principal portion grows — the same payment, gradually buying more principal each month.

Here are the first three months of the worked example below ($1,800,000 at 6.75%, 25-year amortization; monthly rate 6.75% ÷ 12 = 0.5625%).

Check the first row yourself: month 1 interest is $1,800,000 × 0.005625 = $10,125.00. The principal portion is $12,436.41 − $10,125.00 = $2,311.41, and the balance falls to $1,800,000 − $2,311.41 = $1,797,688.59. In month 2 the interest is calculated on that smaller balance, so it drops to $10,112.00 and the principal portion rises to $2,324.41. The principal portion grows by only about $13 a month at first — that slow start is why so little of the loan is repaid in the early years.

Suppose you buy a 36-unit apartment building for $2,400,000. You put $600,000 down (25%) and borrow $1,800,000, fixed at 6.75%, amortized over 25 years, with a 10-year term — a common structure, often written as "10/25."

Step 1: the monthly payment

The payment formula is:

M = P × [r(1 + r)^n] ÷ [(1 + r)^n − 1]

where P is the loan amount, r is the monthly rate, and n is the number of payments in the amortization schedule.

• P = $1,800,000
• r = 0.0675 ÷ 12 = 0.005625
• n = 25 × 12 = 300

(1.005625)^300 ≈ 5.3804, so:

M = $1,800,000 × 0.005625 × 5.3804 ÷ (5.3804 − 1) = $1,800,000 × 0.0069091 ≈ $12,436.41 per month

Annual debt service is $12,436.41 × 12 = $149,237. As a sense-check: if the building's net operating income (NOI) is $195,000 a year, the debt service coverage ratio is $195,000 ÷ $149,237 ≈ 1.31x — the kind of cushion lenders typically want to see.

Step 2: the first year — mostly interest

Add up the first 12 rows of the table:

• Interest paid in year 1: $120,625.59
• Principal paid in year 1: $28,611.29
• Balance after 12 payments: $1,800,000 − $28,611.29 = $1,771,388.71

Roughly 81 cents of every dollar paid in year 1 went to interest — normal for a long amortization schedule, and the first thing first-time borrowers get wrong: after a year of payments, you have repaid less than 2% of the loan.

Step 3: the halfway mark and the balloon

The remaining balance after any number of payments follows this formula:

Balance = P(1 + r)^k − M × [((1 + r)^k − 1) ÷ r]

where k is the number of payments made. After 5 years (60 payments) the balance is $1,635,586.02 — you have repaid $164,413.98, about 9% of the loan.

After 10 years (120 payments) the term ends, and the balance is:

Balance = $1,800,000 × (1.005625)^120 − $12,436.41 × [((1.005625)^120 − 1) ÷ 0.005625] = $1,405,387.55

That is your balloon payment. The 10-year totals behind it:

• Total paid over 10 years: $12,436.41 × 120 = $1,492,368.89
• Principal repaid: $1,800,000 − $1,405,387.55 = $394,612.45
• Interest paid: $1,492,368.89 − $394,612.45 = $1,097,756.45

After 10 years of on-time payments you still owe 78% of what you borrowed. That is not a mistake — it is what a 25-year amortization schedule does on a 10-year term. To run your own numbers, our loan payments calculator shows the same payment, principal-versus-interest split, and balloon balance; for a multifamily purchase like this one, the apartment building mortgage calculator runs the same math with property-level inputs.

Two choices move the payment more than anything else. First, the rate — same $1,800,000 loan, same 10-year term, same 25-year amortization:

A 1.5-point rise in the rate — from 6.00% to 7.50% — adds about $1,704 a month, or roughly $20,450 a year, to the same loan. Notice the balloon barely moves: the rate mostly changes how much of each payment is interest, not how much principal you repay.

Second, the amortization length. Same loan at 6.75%, same 10-year term:

Stretching the amortization from 20 to 30 years saves about $2,012 a month — real money against the property's cash flow. But it leaves a balloon about $343,460 larger and costs more total interest. A longer amortization is not free money; it trades today's cash flow for a bigger bill at maturity.

Balloon structures are written as term over amortization: a "5/25" is a 5-year term on a 25-year schedule; "7/25" and "10/25" work the same way. During the term you make ordinary monthly payments, sized as though the loan ran the full amortization period. At maturity the remaining balance comes due in full — there is no final small payment that clears it.

Two details catch first-time borrowers out. First, the rate is usually fixed only for the term, so a refinance at maturity reprices at whatever rates are then — the payment above is the payment for this loan, not a promise about the next one. Second, some balloon loans are interest-only, so the balance never falls and the balloon equals the full original loan amount. Check whether your loan amortizes; the note will say so.

When the term ends, you have three options:

1. Pay it off. This works if you have the cash, or if a sale covers the balance with room to spare. Few first-time buyers plan on this, but it is the cleanest exit.
2. Refinance. The most common path: take out a new loan — usually another 5- to 10-year term on a fresh amortization schedule — to pay off the balloon. The new loan is underwritten from scratch on the property's current income and value and on current rates, not on the terms you closed with years ago.
3. Ask the lender to extend or modify. Some lenders will extend the term or restructure the loan, particularly if the property is performing. This is a negotiation, not a right, and it is far easier to get when you ask months ahead than when maturity is next week.

What can go wrong is also worth naming. If the property's value has fallen, the loan-to-value may be too high for a lender to cover the full balloon. If NOI has slipped, the debt service coverage ratio may fail the new lender's test. If rates have risen, the new payment may exceed what the cash flow supports. A maturing loan is a brand-new underwrite of the property and the borrower as they exist today — your original closing terms do not carry over.

The single most repeated advice in commercial mortgage broker guides is to start early: generally 6 to 18 months before maturity, with 12 to 18 months the most commonly recommended window. The reason is practical — the things that fix a refinance file, like re-leasing vacant space or building a clean 12 months of operating results, take months, and a file with a year of runway can fix problems a file with sixty days cannot.

A workable timeline:

• 12 to 18 months out: pull the note and confirm the maturity date, prepayment terms, and assumability. Run DSCR and loan-to-value at today's rates and value, not the closing numbers.
• 9 to 12 months out: talk to lenders or a broker, and fix what the numbers show — renew a weak lease, cut a controllable expense, hold back a distribution.
• 3 to 6 months out: order the appraisal, lock the rate, and close. A complete application generally closes in weeks, but gathering the package takes longer — do not plan on the last month.

One timing detail: many commercial loans have an open prepayment window in the final 30 to 90 days before maturity with no penalty. Refinancing earlier can trigger a charge, so the cheapest refinance date is not always the earliest. Read the prepayment section before picking a closing date.

• Confusing the term with the amortization. A "10-year loan" on a 25-year schedule is not paid off in 10 years — $1,405,387.55 is still owed in the example above.
• Ignoring the balloon until year nine. The balloon is the largest single number in the deal. Model it at closing, not at maturity.
• Assuming the same lender refinances on the same terms. The refinance is a new loan at new rates against a new appraisal.
• Underwriting the refinance at the old rate. Run the next loan at today's rates and today's NOI; the old ones are gone.
• Refinancing early without reading the prepayment clause. An early refinance can cost more in penalties than it saves in rate.