Loan Term vs. Amortization: Balloons, SWAPs & Maturity
The structure of a church loan can matter as much as the rate. Know the difference between when payments are calculated and when the loan comes due.
Two clocks running at once
A church loan runs on two timelines. Amortization is the schedule your monthly payment is calculated from — often 20 or 25 years. The term (or maturity) is how long before the loan actually comes due — frequently 3, 5, 7, or 10 years. They are rarely the same, and the gap is where churches get surprised.
What happens at maturity
Because commercial lending carries more risk than a home mortgage, lenders limit how far out they’ll commit a rate. When a loan matures, the remaining balance is due in full. In practice your bank works with you ahead of time to refinance and push the maturity out — but the rate and terms reset to whatever the market looks like then.
Balloons and SWAPs
- Balloon — small payments during the term, then a large balance due at maturity. Lower payments now, refinancing risk later.
- SWAP — an interest-rate swap layered on a floating-rate loan to synthetically fix the rate, sometimes for up to ~20 years. It can lock your pricing, but it carries far more risk than a conventional fixed loan: it’s a derivative contract, and paying the loan off or refinancing early can trigger a large, hard-to-predict termination (“breakage”) cost. Treat it with real caution and get independent advice before signing.
- Fully amortizing — term equals amortization; the loan retires itself with no balloon. Cleanest, but less common in commercial church loans.
Plan for the reset
If your loan has a 5-year maturity on a 20-year amortization, build your plan around that reset. Keep cash flow strong, keep reserves growing, and you’ll refinance from a position of strength rather than scrambling when the clock runs out.