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Why Would a Bank Renew a Loan?

I have had a loan on my property through a bank for some years now. Question is, does a bank renew a loan periodically? If so why? They told me they needed to renew my loan. I've sold my property, and will be paying off the loan; but they told me if I didn't renew, it would cost me 18% versus a lower rate if I renewed. Does this sound right to you?

There must be some confusion. If this is a fixed rate loan you have a set rate and a set maturity date. The maturity date is the date when the loan is supposed to be repaid. Ask your bank what the maturity date is and why it should be renewed early, if that is the case.

While most loans are fully paid by that date, some loans have longer amortizations and a balloon payment. As an example, you may get a home loan with an affordable payment based on a 30 year pay out, but your maturity date is in five years, so you have a balloon payment of the remaining balance at that five year mark. This type of loan requires a large last payment or to be renewed. If it isn't renewed, the default rate, possibly 18% would apply, but that loan would be past due month after month because it is actually all due in full.

Published on 6/07/07