Commercial RE mortgage appraisal lower for refinance
So I got approved for a loan for a single owner occupied commercial real estate building. It’s a 5/20 term. I understand I have to refinance at end of 5 years and if the bank approves then it continues to 5/15 term. If they don’t approve I have to find another bank and it starts a 5/20 again (paying more interest than principle). 

But what I don’t understand- at the end of 5 year term the bank will do another appraisal of the property and let’s say it comes down way lower (RE market crash), will they still approve the loan and continue having me make payments or would they call the ballon note and say the value came out lower than your loan balance so we can’t continue? Like it’s scary every 5 years your stressed if the interest rates go up to 10% or the value of your building declines by a lot even if your still able to make payments.
[{"id": "id9bkqd", "text": "They will have to do an appraisal at the renewal that much is true. What level appraisal is performed depends on the loan amount (automated valuation, restricted, in house, full 3rd party) depends on your loan amount and lender policies. \n\nFrom that its kind of a negotiation on everything.  You *could* continue on another 5/15... or ask to re amortize... or ask to shorten it to a 5/10 or straight 10... or move it to another lender that will give you better terms...\n\nAs to the way lower part that why lenders want you to have equity so that first 15-25% decline in value comes out of your money not theirs (or they can still get theirs back if you default).", "replies": [], "depth": 1}, {"id": "id9oojj", "text": "Yes, you can have a refi gap. This happens to people who borrow too much. \n\nAs another person said, it\u2019s all a negotiation. The bank does not want to foreclose on you so you can try to work out short term extensions.", "replies": [], "depth": 1}, {"id": "idc18zy", "text": "This is a situation where you really need to read through the loan terms very carefully:\n\n* Let\u2019s say your property is currently worth $1 million. You are approved for 65% loan to value financing. In 5 years, your property value declined by 10% to $900,000. I\u2019m guessing you would need to pay your loan down by 10%. \n\n* The loan documents will include changes to your interest rate.", "replies": [{"id": "idhaw1k", "text": "Piggybacking off of of this, the loan agreement will likely have a couple of refi tests in it. Primary tests are a debt service coverage ratio (DSCR) test. Unclear what they gave you for your asset. We own hotels, so we typically see around 1.25:1.00 (property needs NOI of 1.25x the debt/principal payments). The second test would be a loan-to-value test. In the example above, passing or failing this test will have different consequences (i.e., not being able to refi or even default). Loan agreement will likely also say that if you fail the LTV test, you'll need to pay the bank x dollars to buy down the loan to pass the LTV test and not doing so would be a default.", "replies": [], "depth": 2}], "depth": 1}]