20 year note with 3 year ballon

2 Replies

I am in in process of purchasing my 3rd rental property, a duplex, which I'm supposed to close on 8.1.16. My other loans have been traditional 30 year, but I networked to a local bank where I was trying to build a relationship to hopefully simplify future purchases. All was good, but the banker is trying to sell me on a 20 year note (which i was good with) that includes a 3 year ballon. The interest is a touch higher @ 1.5 points than a standard 20 year note and the bank re-fi's at the end of the 3 year period at the then rates which will they then will re-fi for 17 years. The only advantage to using them, is that they do not care if, at a later date I quick claim this property into a LLC that I'm considering. Most banks frown upon this and might call the loan. Any advice..I'm in a world I'm not familiar with and could use some help.

It's it really a balloon or are they offering you a 3/3 adjustable? 3/3 meaning fixed rate for threel years...adjust...fixed for three...rinse & repeat.  The disadvantage of the balloon is that it carries the risk of them not approving you in three years...and it likely comes with additional fees at that time. A 3/3 or 5/5 gives you permanent financing (with a 20 yr term, probably), albeit at an adjustable rate. The goods thing is, though, as time matches on, any increase in rates will be on the lower outstanding balance. If this bank won't do 3/3 or 5/5, I'd talk to another. The balloon may commit you to future costs and potential anxiety, in my opinion. 

Thank You for the advice. Agreed, the ballon is definitely not the way to go and I was having a hard time swallowing it .  But  as you mentioned if it is just adjustable after 3 years, then it may be something i can live with since the balance will be lower etc, etc.  I"ll give the bank a call on Tuesday and clarify and will ask for documentation covering the loan.  Thanks again. 

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