The quick read: It depends on whether the property passes the extension tests already written into your loan agreement. Exercise a contractual extension when you meet its conditions and the business plan needs only months; refinance when today's sizing covers the payoff; negotiate a modification when neither works. Price all three before the extension notice deadline, not at maturity.
For the mechanics of the final payment itself, read what happens when a commercial balloon payment comes due; for the market-wide view, see what borrowers should do about the CRE maturity wall. This guide covers only the choice between extending, refinancing, modifying and selling.
Should you extend or refinance a maturing commercial loan?
You should extend a maturing commercial loan when you hold a contractual extension option whose tests you can pass at a cost below the refinance gap, and refinance when current sizing covers your payoff or the extension conditions would force a larger paydown. A modification is the fallback when neither route works.
The three routes are different legal animals, and treating them as interchangeable is how borrowers run out of time:
Extension option: a right written into your existing loan, exercisable only if every condition attached to it is met on the dates the agreement sets. Refinance: a new loan from any lender, sized on today's income and today's rates, that pays the old loan off. Modification or forbearance: a negotiated change to the existing loan that the lender is not obliged to grant.
The scale of the decision is large this year. The Mortgage Bankers Association reported on February 9, 2026 that seventeen percent ($875 billion) of $5.0 trillion of outstanding commercial mortgages held by lenders and investors is scheduled to mature in 2026. In the same release, MBA's chief economist described 2025 as a transition year in which "lenders were no longer simply extending loan terms." A borrower who assumes the lender will roll the loan is making a bet, not a plan.
What does a contractual extension option require?
A contractual extension option lets you push the maturity date out without a new loan, but only if you satisfy every condition the loan agreement attaches to it on the dates it names. Those conditions decide whether the option is real, so read the extension section of your note before you plan around it.
The conditions vary by agreement, but they tend to come from the same short list. There is no public, dated source that states market-wide extension fees or test levels by lender type, so the list below describes the mechanism; your own agreement supplies the numbers.
Notice: written notice by a deadline set in the agreement. Miss it and the option can lapse even if the property qualifies. No default: no event of default outstanding on the notice date or the extension date. Extension fee: a fee whose amount and payment date the agreement sets. Performance test: a minimum debt service coverage ratio, a minimum debt yield, or a maximum loan-to-value, measured at or near the extension date. Rate-cap renewal: on a floating-rate loan, a new or extended interest rate cap covering the extension term. Paydown or cash sweep: if the property misses the test, a principal paydown that brings the ratio back into line, or excess cash trapped to reduce the balance.
The rate-cap condition can be costly to meet when rates have risen. Commercial Observer's March 27, 2023 analysis of CRED iQ data on CRE CLO loans warned that if an interest rate cap agreement expires before the loan matures, debt service could surge substantially absent a new or extended cap, and that uncapped note rates were then approximately 200 basis points higher on average than effective rates protected by cap strike prices. The same article cited one $337.5 million cap agreement with a 4 percent strike, expiring in February 2024, whose cost rose from approximately $780,000 to $3.5 million in a year, per hedge advisory firm Derivative Logic. Cap pricing moves with rates and volatility, so get a current quote before you count an extension as the cheap option.
What does refinancing cost compared with extending?
Refinancing replaces the old loan with one sized on current income and current rates, so its real cost is the sizing gap between the new loan amount and your payoff, plus the new loan's fees and prepayment terms. When rates have moved against you, that gap can dwarf every fee on either side.
The worked example below uses assumed inputs, not market quotes, to show how the two routes can demand very different amounts of cash for the same property. The extension column assumes a loan agreement with a 9.0 percent minimum debt-yield test; the refinance column assumes a 6.50 percent coupon, 30-year amortization and a 1.25x coverage requirement.
| Illustrative (our arithmetic) | Extend: assumed 9.0% debt-yield test | Refinance: assumed 6.50%, 30-year, 1.25x |
|---|---|---|
| Net operating income | $850,000 | $850,000 |
| Maximum loan the test allows | about $9.44 million ($850,000 / 0.09) | about $8.97 million ($680,000 debt service / 0.0758 annual constant) |
| Payoff due at maturity | $10.0 million | $10.0 million |
| Cash needed to close the gap | about $556,000 paydown | about $1.03 million |
| Other costs | extension fee and any cap cost, per your agreement | new lender's fees, third-party reports and closing costs |
In this example the extension needs roughly half the cash, but it only buys time: the refinance gap is still waiting at the extended maturity unless income rises or rates fall. That is why the extension answer depends on the business plan, not only on the test.
Published refinance terms exist for some multifamily agency loans; Freddie Mac posts dated term sheets. Freddie Mac's Conventional Floating-Rate Loan term sheet for multifamily properties, dated 4/26, states:
Terms: 5-, 7- and 10-year terms, minimum $10 million, priced over 30-day Average SOFR. Sizing: 1.25x minimum amortizing debt coverage ratio with maximum loan-to-value of 75 percent (5 to under 7 years) or 80 percent (7 years and longer) on amortizing and partial interest-only loans. Application fee: greater of $2,000 or 0.1 percent of loan amount for conventional first mortgages. Prepayment: four options, from Option 1 (locked out in year 1, then 1 percent) to Option 4 (7, 6, 5, 4, 3, 2 percent, then 1 percent, only for a 10-year capped floating-rate loan), each with no premium for the last 90 days of the loan term. Rate cap: the borrower may obtain its own cap coverage from a third-party provider on Freddie Mac's Approved Counterparties List.
This article found no dated public term sheet from a bank, bridge lender or debt fund, so for those lender types the right move is to ask for written terms rather than rely on a quoted range.
When does a modification or forbearance make more sense?
A modification or forbearance makes more sense when the property cannot pass the extension tests and a refinance would leave a gap you cannot fund, because it is the route in which the existing lender agrees to change the terms rather than enforce them. It is negotiated, never guaranteed, and it runs on documentation.
For bank and credit union loans, the supervisory guidance is public. On June 30, 2023 the Federal Reserve, FDIC, NCUA and OCC issued the Policy Statement on Prudent Commercial Real Estate Loan Accommodations and Workouts. It says workouts can take many forms, including renewing or extending loan terms, granting additional credit, or restructuring the loan with or without concessions. It says financial institutions that implement prudent CRE loan accommodation and workout arrangements after a comprehensive review of a borrower's financial condition will not be subject to criticism for those efforts, and that modified loans to borrowers who have the ability to repay their debts according to reasonable terms will not be subject to adverse classification solely because the value of the collateral has declined to less than the outstanding loan balance.
The same statement lists key elements of a prudent workout plan, including updated and comprehensive financial information on the borrower, the real estate project, and all guarantors and sponsors; current valuations of the collateral; an appropriate loan structure, covenants, and requirements for curtailment or re-margining; and appropriate legal analyses and agreements. It describes a financially responsible guarantor as one with the financial ability, demonstrated willingness and incentive to support the loan through ongoing payments, curtailments or re-margining. Read that as your checklist: these are among the elements a bank's examiners expect its workout plan to rest on, so bring them to the conversation.
Securitized loans move through servicers rather than bank examiners, and the recent record shows relief is available there too, in several shapes. Commercial Observer reported on September 1, 2026 that CRED iQ tracked 82 modified CMBS and CRE CLO loans with $2.36 billion in outstanding balance from May through July 2026. Maturity extensions were the largest category at 21 loans and $802.5 million, 34 percent of modified balance, followed by forbearances at 15 loans and $514 million. On March 23, 2026 the same publication reported that in CRED iQ's CMBS modification data, which covers events since 2019, 1,249 loans had received maturity extensions, with an aggregate unpaid principal balance of approximately $115 billion.
Which route fits your maturing loan?
The route that fits your maturing loan is the one whose conditions you can meet and whose cash requirement you can fund before the deadline, and the table below puts the four options side by side so you can rule routes out quickly. Start from the blockers column, not the cost column.
| Decision table | When it fits | What it costs | What can block it |
|---|---|---|---|
| Exercise the extension option | You pass the agreement's test, or can pay down to it, and the plan needs only the extension term | Extension fee, any rate-cap cost, any required paydown | Missed notice date, a default, a failed coverage, debt-yield or loan-to-value test |
| Refinance | Current sizing covers the payoff, or the gap is fundable, and the property is stable enough for a new lender | Sizing gap, new lender's fees, third-party reports, closing costs | Income or value too low for today's rates; lender appetite for the property type |
| Negotiate a modification or forbearance | Neither route above works and you can document ability to repay on reasonable terms | Negotiated: possible paydown, fee, rate change, cash management | Lender or servicer declines; weak guarantor support; missing financials |
| Sell | The equity is better used elsewhere or no financing route closes the gap | Transaction costs and any loss against the payoff | Market price below the payoff |
One rule cuts across every row: decide early. An extension option can lapse on its notice date, a refinance needs time for appraisal and underwriting, and the June 30, 2023 interagency policy statement says proactive engagement by the financial institution with the borrower often plays a key role in the success of a workout. The schedule below is our suggested working plan, not a lender requirement.
Twelve months out: pull the note, find the extension section and its notice date, and re-size the loan at a current coupon. Nine months out: run the extension test on current income and get a rate-cap quote if the loan floats. Six months out: collect written refinance terms from several lender types and compare them with the extension cost. Before the notice date: choose the route, and open a modification conversation only if neither extension nor refinance works.
How do you get lenders competing to refinance a maturing loan?
You get lenders competing to refinance a maturing loan by sending one complete file, sized at today's rates, to several lender types at the same time, so banks, agencies, bridge lenders and debt funds each price the refinance against their own tests while your extension option is still alive as the fallback.
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Bring: the existing note with its extension and prepayment sections, a payoff statement, the current rent roll, trailing twelve months of operating statements, and a sponsor schedule of real estate owned. Tell the lender: the maturity date, the extension notice date, the payoff amount, and whether the property passes its extension test today.
Submit your maturing loan to see which lender types want the refinance before your extension deadline.
The bottom line
Extend when you pass your agreement's tests and need only time; refinance when today's sizing covers the payoff; negotiate a modification only when neither works. Run the extension test, the refinance sizing and the rate-cap quote well before the notice date, because the cheapest route is usually the one you still have time to choose.