What is a take-out loan?
A take-out loan is any type of long-term financing commonly used to buy or extract value from real property. A long-term mortgage on a commercial real estate purchase is a type of take-out loan.
Take-out loans come into play mostly with the purchase or mortgaging of commercial real estate. This may include the purchase or mortgaging of office buildings, retail locations or other types of income-producing properties, including some types of tenant-based properties. As a type of long-term financing, it generally offers fixed payments that are amortized.
By comparison, short-term loans such as construction loans or builder loans are not take-out loans; they are interim financing. Take-out loans often are used to replace short-term loans, including personal loans and construction loans. For example, a take-out loan is used to replace a construction loan after the construction on a property is complete. The take-out loan usually will have a balloon payment upon maturity.
Take-out loans can be used for traditional residential real estate purchases, but they are generally used only in commercial construction. A take-out loan can be accessible to those who have significant credit qualifications. Take-out loans are typically readily available to investors.
Take-out loan example
An investor plans to build a multi-tenant commercial building on a piece of land. The builder buys the land and obtains a construction loan to fund the construction of the property. After the construction is complete, the property is reassessed and the owner obtains a mortgage with fixed payments on the property. This is a take-out loan, and it replaces the construction loan.
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