Would you take 3% with 7yr balloon or 2.75% with 5 yr balloon?

Question

If you had to make a decision in the current market, would you take 3% with 7yr balloon or 2.75% with 5 yr balloon? On a 20 yr amortization. What is your reasoning?

Jason J. · Answer

Thanks for the advice everyone. I ended up going with the 7 year balloon at 3% with a standard 20yr amortization. I buy and hold with all of my properties so this makes the most sense. This loan is for an 18,000sf commercial industrial / office building that is approximately 70% leased to a single tenant. In it's current state, the building is cash flow neutral. Because of this, the bank is making me put 25% down instead of the usual 20% and that is OK with me. I have a few tenants lined up for the rest of the space so I think it will be a great value-add investment. The building is in excellent condition and should be close to a 9 cap once fully leased.

Karl McGarvey · Answer

At those interest rates I'm taking the longest terms I can get. Heck I would negotiate 30yr amortized with no balloon if I could - show the sellers the numbers and how much extra they make if you pay them the full 30 years and point out that with current interest rates on the rise there is no reason for you to Refi out. They get 30 yrs of income and you get a great deal

Eric Goldman · Answer

Most of my friends and clients skip on the balloons. I would look for 30 year fixed.

Dave Skow · Answer

easy - 7 yr option - .25% lower rate on 5 yr program not worth rate changing in 5 yrs versus 7 ...............if you plan to sell it or pay it off before 5 yrs - then use the 5 yr at lower rate

These rates are likely higher now

Would you take 3% with 7yr balloon or 2.75% with 5 yr balloon?

Would you take 3% with 7yr balloon or 2.75% with 5 yr balloon?

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