Some Lenders Offer Partial and Full-Term Interest-Only CMBS Loans
If you’re a CMBS loan borrower who wants to maximize cash flow during the duration of your loan term, you may want to consider partial or full-term interest-only CMBS financing. While they might sound like a special breed of CMBS loan, interest-only CMBS loans are actually incredibly common; over 50% of CMBS loan transaction in 2018 were interest-only.
Interest-Only CMBS Loans Increase Cash Flow, But Also Carry Certain Risks
If you decide to take out a full-term interest-only loan, you’ll certainly have less to worry about in the way of monthly payments. However, it’s important to realize that your balloon payment will be significantly larger if the loan doesn’t amortize at all througout its term. In practice, interest-only CMBS loans have a significantly higher default rate than their amortizing cousins, so borrowers should make sure that they’ll be able to make their balloon payments— or plan carefully to refinance the loan when it reaches maturity.