5 year balloon
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5 year balloon (by NE [PA]) Jun 4, 2018 9:52 AM
       5 year balloon (by GKARL [PA]) Jun 4, 2018 10:00 AM
       5 year balloon (by JB [OR]) Jun 4, 2018 10:37 AM
       5 year balloon (by Ken [NY]) Jun 4, 2018 10:39 AM
       5 year balloon (by GKARL [PA]) Jun 4, 2018 11:21 AM
       5 year balloon (by Ken [NY]) Jun 4, 2018 11:24 AM
       5 year balloon (by Barb [MO]) Jun 4, 2018 11:35 AM
       5 year balloon (by S i d [MO]) Jun 4, 2018 1:02 PM
       5 year balloon (by Pmh [TX]) Jun 4, 2018 1:35 PM
       5 year balloon (by Pmh [TX]) Jun 4, 2018 1:39 PM
       5 year balloon (by Pmh [TX]) Jun 4, 2018 2:41 PM
       5 year balloon (by GKARL [PA]) Jun 4, 2018 2:42 PM
       5 year balloon (by GKARL [PA]) Jun 4, 2018 2:56 PM
       5 year balloon (by Pmh [TX]) Jun 4, 2018 3:02 PM
       5 year balloon (by GKARL [PA]) Jun 4, 2018 3:04 PM
       5 year balloon (by BRAD 20,000 [IN]) Jun 4, 2018 3:07 PM
       5 year balloon (by BRAD 20,000 [IN]) Jun 4, 2018 3:10 PM
       5 year balloon (by DJ [VA]) Jun 4, 2018 4:03 PM
       5 year balloon (by Chris [CT]) Jun 4, 2018 4:40 PM
       5 year balloon (by GKARL [PA]) Jun 4, 2018 4:42 PM
       5 year balloon (by razorback_tim [AR]) Jun 4, 2018 5:33 PM
       5 year balloon (by Beth [WI]) Jun 4, 2018 6:08 PM
       5 year balloon (by #22 [MO]) Jun 4, 2018 6:14 PM
       5 year balloon (by NC INVESTOR [NC]) Jun 4, 2018 8:37 PM
       5 year balloon (by NC INVESTOR [NC]) Jun 4, 2018 8:37 PM
       5 year balloon (by JB [OR]) Jun 4, 2018 9:32 PM
       5 year balloon (by AL [NC]) Jun 5, 2018 4:03 AM
       5 year balloon (by Barb [MO]) Jun 5, 2018 6:04 AM
       5 year balloon (by Chris [CT]) Jun 5, 2018 12:29 PM
       5 year balloon (by pmh [TX]) Jun 5, 2018 2:40 PM
       5 year balloon (by Pmh [TX]) Jun 5, 2018 2:47 PM
       5 year balloon (by Pmh [TX]) Jun 5, 2018 2:59 PM
       5 year balloon (by GKARL [PA]) Jun 5, 2018 3:04 PM
       5 year balloon (by GKARL [PA]) Jun 5, 2018 3:12 PM
       5 year balloon (by Pmh [TX]) Jun 5, 2018 3:16 PM
       5 year balloon (by GKARL [PA]) Jun 5, 2018 3:21 PM
       5 year balloon (by Pmh [TX]) Jun 5, 2018 3:26 PM
       5 year balloon (by Pmh [TX]) Jun 5, 2018 3:27 PM
       5 year balloon (by Pmh [TX]) Jun 5, 2018 3:29 PM


5 year balloon (by NE [PA]) Posted on: Jun 4, 2018 9:52 AM
Message:

I'm not too familiar with how balloons work. If there is a 20 year mortgage on a property with a 5 year balloon, does that mean in 5 years the balance is due? Does it mean interest for the rest of the life of the note is due as well? Or is that already paid for the 1st 5 years and then the loan is just paid off?

--174.201.x.xxx




5 year balloon (by GKARL [PA]) Posted on: Jun 4, 2018 10:00 AM
Message:

Payments are figured using a 20 amortization and unpaid note balance is due in 5 years. --172.58.xxx.xx




5 year balloon (by JB [OR]) Posted on: Jun 4, 2018 10:37 AM
Message:

Like GKarl said. Note is due in 5 years, but payments based on 20 year amortized loan. So, within 5 years you need to refinance, sell, renegotiate the note for extra time, or pay off the loan some how. --50.45.xxx.xxx




5 year balloon (by Ken [NY]) Posted on: Jun 4, 2018 10:39 AM
Message:

20 year amortization and print the amortization schedule and at the end of 5 years the balance due is what you would owe,no additional interest.Balloons are dangerous,I would not buy a house with a balloon unless I was going to increase the payments to a 5 year amortization and have it paid off then.We could be in a bust again in 5 years and you may not be able to refinance it --72.231.xxx.xxx




5 year balloon (by GKARL [PA]) Posted on: Jun 4, 2018 11:21 AM
Message:

Balloons are very common with commercial mortgages as banks hold these loans on their books rather than sell them on the secondary market. They balloon so the bank can pass along any increases in their cost of funds. All of my loans except one are commercial. I wouldn't finance a residential mortgage in that manner; there's no need to. --172.58.xxx.x




5 year balloon (by Ken [NY]) Posted on: Jun 4, 2018 11:24 AM
Message:

GKARL,that is part of why I never got into commercial,just plain scares me and I always felt I could be the best in my area at residential but if I got into commercial I would be dealing with pros all the time and not have the advantages I have in residential --72.231.xxx.xxx




5 year balloon (by Barb [MO]) Posted on: Jun 4, 2018 11:35 AM
Message:

My mortgages on my new construction are balloons. 1, 3, or 5 year note on 20, 25 or 30 year amortization, depending on balance.

At the end of the term, the loan officer drives by, takes a photo that the house is still there and looks good. She has the right to ask for an appraisal or tour of the inside. If an appraisal is desired, I'm billed.

Then, we sign a new note for a new term at the now current interest rate. Basically, it is an adjustable interest rate, where the interest rate adjusts at the end of the term. I only make the payment we agree to, and I can pay it off at any time.

For a smaller note, I can pay it off over 5 years. For my new construction, I'm planning to finance it over much longer, and plan to resign every 5 or so years. It means I'm keeping a very close eye on interest rates. If rates are lower, I want to lock in that rate for 5 years, the max this bank will do. If rates go up, I can go with only 1 year at that interest rate.

If I need to change the rate outside the agreed upon term, I can ask, such as if the cost of money goes down. They MAY, because I'm a good customer, lower it once a year or once a term, depending.

The nice thing is that these are commercial loans, so easy paperwork. --131.151.xx.xx




5 year balloon (by S i d [MO]) Posted on: Jun 4, 2018 1:02 PM
Message:

Interesting tid-bit: Balloon notes are what sunk Dave Ramsey, and one of the reasons why he HATES debt the way he does. He had very short term "flipper" notes that had 60, 90, 120 day "call" periods, and when the bank he borrowed from was sold and they felt they were too exposed to him ($3+ million), they didn't renew his terms. Nothing he did wrong per se--his operation was profitable, the economy was good--but the new owners had a different risk perspective.

I think this is why he hammers so hard on that verse from Proverbs: "The borrower is slave to the lender." His lenders treated him pretty harshly even when he was making them money.

I sometimes wonder if he had been a slightly more conservative REI if he'd have ever gone bust and gone the way he did and achieved the level of success he had. --173.19.x.xxx




5 year balloon (by Pmh [TX]) Posted on: Jun 4, 2018 1:35 PM
Message:

commercial notes are invariably ballooons and are usually sold and not carried as balance sheet loan - so Karl is partially correct- I have done balloons with some banks who carried the paper but most loans done were cmbs. --166.137.xxx.xx




5 year balloon (by Pmh [TX]) Posted on: Jun 4, 2018 1:39 PM
Message:

not sure why Sid continues to invoke religion into a LL question & answer....perhaps like Ramsey he has not paid his bills in the past so resorts to a justification of why he is/was a deadbeat and didnít do what he promised to do. is there a commandment for that (?)...most here make a promise and keep it. without having to go to church every sunday...lol. --166.137.xxx.xx




5 year balloon (by Pmh [TX]) Posted on: Jun 4, 2018 2:41 PM
Message:

Sid. I have done balloons for 30 years on hotels & rentals...the only risk is interest rate risk. If you have made payments as agreed then you will always find lenders to rollover the notes. If you donít pay as promised then you will get hurt, as ramsey did and it appears yourself...keep the religion to yourself and pls make rational responses. --166.137.xxx.xx




5 year balloon (by GKARL [PA]) Posted on: Jun 4, 2018 2:42 PM
Message:

Ken, I have found non-pro's playing in the commercial area and my last deals have been the best involving distressed sellers. Folks get in trouble every sector. To be honest, I wound up in the commercial area merely by chance. To me the interest rate risk is offset by the ability to force equity by managing the property better. Like everything else, you have to buy at the right price. Since I came late to real estate investing, this allowed me to scale much quicker than I otherwise would but I agree caution is in order as well. I think strip malls and stuff like that are far more sensitive to economic changes. I don't know how some of these mall owners are going to roll over their debt given the death of retail. In their case equity may have been forced the other way. --64.121.xxx.xxx




5 year balloon (by GKARL [PA]) Posted on: Jun 4, 2018 2:56 PM
Message:

"The nice thing is that these are commercial loans, so easy paperwork"

Barb, what you said has been my experience. Paperwork and processing goes quick and easy. In my experience, it's because of a established business relationship. My banker comes to me and the last few closings were done in my office. I recently locked all loans at 4.75% for seven years. I plan on paying down at least one loan quite a bit during that time just in case. Whereas I think interest rates are going to climb, there's a limit how far they can go without burying the entire economy given the levels of government debt. A huge spike in rates would most likely result from collapse of the dollar and as long as oil trades in dollars, that's unlikely. --64.121.xxx.xxx




5 year balloon (by Pmh [TX]) Posted on: Jun 4, 2018 3:02 PM
Message:

big stretch in that last post Karl --166.137.xxx.xx




5 year balloon (by GKARL [PA]) Posted on: Jun 4, 2018 3:04 PM
Message:

Pmh, please explain --172.58.xxx.xxx




5 year balloon (by BRAD 20,000 [IN]) Posted on: Jun 4, 2018 3:07 PM
Message:

Yup, Sid's right, NE is is being coached to be wary of a balloon because posters realize he will be slave to that lender's timetable.

Perfectly applicable.

BRAD --68.50.xxx.xxx




5 year balloon (by BRAD 20,000 [IN]) Posted on: Jun 4, 2018 3:10 PM
Message:

NE,

Just a reminder: after 5 years only "pennies" of principle will be paid down. Almost every payment will go to interest in the first 5 years.

BRAD --68.50.xxx.xxx




5 year balloon (by DJ [VA]) Posted on: Jun 4, 2018 4:03 PM
Message:

Pmh: Treat other as you would like to be treated. That is also from the Bible, as well as just a very good way to live and do business. I think you are a little out of line with some of your criticisms. I think Sid's advise is sound - certainly as much as others'. To each his own. Take what you like and leave or ignore the rest. --68.10.xxx.xxx




5 year balloon (by Chris [CT]) Posted on: Jun 4, 2018 4:40 PM
Message:

I am not a fan of balloons because back in 2008 at lot of people couldn't refinance them, banks were not lending.

All of my commercial notes are straight amortization.

I do agree with Karl they are so easy to close.

--24.45.xxx.xxx




5 year balloon (by GKARL [PA]) Posted on: Jun 4, 2018 4:42 PM
Message:

Chris, where are you getting fixed commercial loans? --172.58.xxx.xxx




5 year balloon (by razorback_tim [AR]) Posted on: Jun 4, 2018 5:33 PM
Message:

Many portfolio loans will have a balloon unless you have a short term of 10 years or less. The idea is that the bank will offer an extension when the balloon is due at the current interest rate and some additional fees. There are more risks than just interest rate risk. These portfolio loans can be called even if you have made every payment on time if the bank decides they no longer want risk associated with a particular asset class or if they begin to view that particular asset class as risky and want to whittle their holdings. There is also no guarantee of renewal. With todayís regulations a new appraisal will probably be required for renewal and if property values decline you may have to pay some principal down to renew. If you are talking to a bank about this ask them if they will do a full amortizing loan fixed for the first 5 years and variable on an annual basis after that. You still have the interest rate risk but should have lower risk in some of the other areas.

As to the borrower being slave to the lender, thereís nothing religious about that - itís a fact of borrowing money. If you have ever found yourself in a situation where you were struggling to make payments due to decreased cash flow (think late 2000ís) then you understand exactly what it means. --166.137.xxx.xx




5 year balloon (by Beth [WI]) Posted on: Jun 4, 2018 6:08 PM
Message:

I donít recall the exact year I last tried to re-finance my 5 year balloon but it was probably back in 2007 or 2008. I had an 8 unit at that time, and that required a commercial loan with a balloon. Lending was hard to get at that time. I started an entire year in advance before the balloon expired. Called around. Found a bank that LOVED me and wanted a working relationship with. Gave me a verbal quote for a great 5 yr balloon. Long story short...they must have had some borrowers not paying. They delayed and delayed my loan closing and finally told me they could only give me a one year balloon with a pretty high interest rate. I found a different bank that gave me a new balloon loan (but with a harsh prepayment penalty).

All I can say it that Iím glad I started the process of re-financing the mortgage a year in advance. It took months. If I had waited until I only had 3 months I do not know what would have happened. We had ( and still have) great credit, assets, etc and we still had problems at that time. --24.177.xxx.xx




5 year balloon (by #22 [MO]) Posted on: Jun 4, 2018 6:14 PM
Message:

I get 10 years on my commercial loans. 5 years fixed, 5 years adjustable. Most banks will give you the extra 5 years to make it a 10 year term. --174.234.xxx.xxx




5 year balloon (by NC INVESTOR [NC]) Posted on: Jun 4, 2018 8:37 PM
Message:

I looked into commercial last year. The longer the term the higher the rate and the rates were subject to LIBOR fluctuations. Five years was the sweet spot with step down prepayment fees. They all wanted blanket loans for the portfolio and while you could technically pull a single property out the costs were prohibitive. The final decision for me were 2 things: the DD fees were 2.5% of the loan and durning DD they required a contract where I agreed not to negotiate with another lender.

Decided to stay where I was. --71.75.xx.xx




5 year balloon (by NC INVESTOR [NC]) Posted on: Jun 4, 2018 8:37 PM
Message:

I looked into commercial last year. The longer the term the higher the rate and the rates were subject to LIBOR fluctuations. Five years was the sweet spot with step down prepayment fees. They all wanted blanket loans for the portfolio and while you could technically pull a single property out the costs were prohibitive. The final decision for me were 2 things: the DD fees were 2.5% of the loan and durning DD they required a contract where I agreed not to negotiate with another lender.

Decided to stay where I was. --71.75.xx.xx




5 year balloon (by JB [OR]) Posted on: Jun 4, 2018 9:32 PM
Message:

Pmh [TX], I have no idea why you felt the need to attack Sid for his views. He was right on the money...and it was a perfectly reasonable response for/from anyone thinking in a rational manner. Maybe you need a drink. --50.45.xxx.xxx




5 year balloon (by AL [NC]) Posted on: Jun 5, 2018 4:03 AM
Message:

PMH(TX), wow, did someone from the church hurt you! Sid, I agree God is good and following his principles will surely keep us out of danger. However, because of his loving Grace, he will always hear our cry when we fail and do things on our own. I try to seek God in everything I do. He is the reason I am who I am. All belongs to him. I praise you Jesus. AND I pray for PMH (TX) that he will find you in these end times. Wrap your loving arms around him and provide him and his family with what they needs. You own it all Lord!. Thank you for PMH (TX). Love you! --24.179.xx.xx




5 year balloon (by Barb [MO]) Posted on: Jun 5, 2018 6:04 AM
Message:

I believe we are discussing a couple of different kinds of loans here.

My local bank and my CU both offer loans with balloons. At the end of the term, you extend the loan for another term at th current interest rate.

When I do one, they are usually amortized over 20, 25, or 30 years, depending on the size. Then, I also get a schedule to pay it off during the initial term. I always make the minimum payment based on the initial amortization schedule, but try to get as close to the amount needed for the initial term.

It takes discipline, paying attention, and working with a banker, but I can see my light at the end of my tunnel. Even with my new build in 2011 and my current construction project, I have a plan in place for total freedom.

Balloons are a way to finance a single property for a set period of time. My bank keeps them in house, so it means I donít have to deal with a third party. --64.251.xxx.xxx




5 year balloon (by Chris [CT]) Posted on: Jun 5, 2018 12:29 PM
Message:

Karl I have a great long term relationship with a mid sized commercial bank. I negotiate terms over the phone or lunch with the president or vp.

Its surprising how flexible banks can be if they want to be.

--24.45.xxx.xxx




5 year balloon (by pmh [TX]) Posted on: Jun 5, 2018 2:40 PM
Message:

Point is we donít need religion invoked here on a LL business board....I am ďblessedĒ by those who are concerned about my soul....and by those rejected applicants who hope that by signing that on emails or at end of vetting calls hope I will ignore their faults...in god we trust, all else pay cash..lol..... --104.218.xxx.xx




5 year balloon (by Pmh [TX]) Posted on: Jun 5, 2018 2:47 PM
Message:

the reason NC rates are higher on longer term notes is bc interest rate risk. I have negotiated 0.75 to 1.00 fees. always negotiable. not sure why anyone scared of balloons. has always been standard for commercial notes. usually 5 or 7 years, longer terms possible with higher rates. invariably Libor + the plus is what you negotiate also. Those of us who pay our notes as promised donít need to use religion as excuse why we shouldnít or couldnít.... --104.218.xxx.xx




5 year balloon (by Pmh [TX]) Posted on: Jun 5, 2018 2:59 PM
Message:

Beth. probably at end of 2008 for you...there would have been no problems 2007. remember the great implosion...$ got tight. It wasnít that borrowers werenít paying it was that investors in cmbs notes were getting more cautious. ....liquidity at that time was also big issue. I had to rollover a few hotel notes at that time and it was dicey & expensive for short term. it didnít matter what your payment history was so much. the markets were locked. to all: you may borrow from local banks but they use investors to buy & back their loans. in a crunch they have less $ than the big banks. big banks have more resources. they will also offer better rates. --104.218.xxx.xx




5 year balloon (by GKARL [PA]) Posted on: Jun 5, 2018 3:04 PM
Message:

I have a decent relationship with my bank but they have guarantees up the wazoo. I personally guarantee the loans, my CPA firm guarantees along with one of my LLCs guaranteeing. It's not as it I'm cross collateralized, but close to it. What sort of guarantees are you guys making?

My interest rate and terms are excellent though, however, I figure in seven years when I'm due to renew, I may just cash out of everything depending on where things are. --207.172.xx.xxx




5 year balloon (by GKARL [PA]) Posted on: Jun 5, 2018 3:12 PM
Message:

" big banks have more resources. they will also offer better rates"

My experience has been big banks don't want to deal. I got turned down on my initial commercial purchase by WF and I turned to my credit union. Perhaps the loan size was enough for them but most everyone around my area deals with local banks ad credit unions on commercial. For the most part, we're talking about 5-12 units and mixed use. Hotels and such probably offer a loan size that more feasible for the big boys. --207.172.xx.xxx




5 year balloon (by Pmh [TX]) Posted on: Jun 5, 2018 3:16 PM
Message:

so Karl you have recourse loans. cross collateralized loans means you have other properties supporting the loan(s). Not something I would suggest although I did have to do that for interim loans on balloon commercial notes renewing end of 2008 and in 2009 bc of the great implosion. did refi out when the commotion started settling down and lenders & investors in cmbs notes had liquidity again. hopefully that will not happen again soon. --104.218.xxx.xx




5 year balloon (by GKARL [PA]) Posted on: Jun 5, 2018 3:21 PM
Message:

Yes. I have recourse loans for sure. Are you avoiding that altogether? --207.172.xx.xxx




5 year balloon (by Pmh [TX]) Posted on: Jun 5, 2018 3:26 PM
Message:

yes. local CU which has local investors will be more open to loans such as what you may want. but you will be paying higher rates. on personal side I have done refis with WFB on properties as low as $300k valuation. when I talk about hotels I am financing, for my day job, $30m - $50m. but what I am trying to convey is the $ is out there again and all open to negotiation on terms. local investors and cmbs note investors are out there. They always have been. donít flub off the big banks. They have investors wanting to front $ also.. --104.218.xxx.xx




5 year balloon (by Pmh [TX]) Posted on: Jun 5, 2018 3:27 PM
Message:

Not sure what you think I am avoiding (?) --104.218.xxx.xx




5 year balloon (by Pmh [TX]) Posted on: Jun 5, 2018 3:29 PM
Message:

I always do non recourse loans. --104.218.xxx.xx





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