Theater officials took out the original $250,000 mortgage in 1994 when the theater was in the midst of a funding crisis.
Patricia Wolford, the theater's board president and acting director, would not comment Tuesday about the impending loan from the credit union.
But theater board member W. Kennedy Boone III termed it "a good deal."
The six-month loan will have an interest rate of 9 percent, he said.
Credit union and theater officials plan to negotiate a long-term loan to pay off the $130,000 loan over 10 or 15 years, Boone said.
A long-term loan is expected to reduce the theater's annual mortgage payments, including debt service, from $52,000 to $18,000, according to Boone.
The anticipated long-term loan should be "a piece of cake" to pay off, he said.
Details of that loan are expected to be worked out after the bank receives the theater's financial audit covering the period July 1, 1995, through Dec. 31, 1996, Boone said. That audit is expected to be completed in April.
"We are pleased to be able to step in and help preserve the viability of Hagerstown's premier cultural attraction," Barrett said in a prepared statement.
The loan is "a sound business opportunity" for the credit union, one that also will help improve the business climate in downtown Hagerstown and Washington County, the statement said.
Whether the loan is good news for the theater is a matter of perspective, said Hagerstown Mayor Steven T. Sager.
"Until they get in a tunnel with a light at the end of it, this just prolongs the situation," Sager said.
The result of the short-term loan might be to provide theater officials with six more months to move in the wrong direction, he said.
"I hope this works. I don't think it will," Sager said.
Sager last December applied for a job as the theater's executive director.
Wolford said then that the theater could not afford an executive director and instead would hire a managing director to replace Executive Director Kelley Gilbert, who had been dismissed last June.
Theater officials have hired a managing director, but have not revealed the new employee's identity. Wolford has said that announcement would come after the theater made its balloon payment.