Loan with balloon maturity

[Joel F.]

good morning all,

I have a question, I have been approved for a loan to secure another investment property.  I have previously paid cash and have not had to use borrowed money before.  the loan I was approved for is a 15 year loan with a 5 year balloon maturity.  What does that actually mean? 

[Bill Gulley]

Your loan is amortized over a 180 month (15 year) period requiring payments monthly until the 60th payment (5 years) at which all remaining amounts due under that obligation will be payable in full. 

Banks usually have such provisions so they are not lending at the same interest rate for longer periods. If a loan is paid as agreed and the collateral is in acceptable condition they usually renew that loan for another like term, but don't count on it as a certainty, they can ask for all their money back. Good luck :) 

[John Santero]

that means you get a 20 year amortigation schedule BUT they review every 5 years which means you basically start all over again every 5 years.  I had these and even though I never missed a payment or was late- the bank called my loans and would not renew during the 2009/10 fun years. Be careful of these balloons-

[Joshua Springer]

Bill hit it on the head, but it in this instance I would shop around and see if you can find anything better then that.  Cost of doing business goes up dramatically if you can't/they won't renew the loan after the baloon as you would have to close on a new mortgage to refinance the current.

I know terms of financing in my area are better then that right now but obviously every area is different.

[Joel F.]

Thank you gentlemen

[Joel F.]

one follow up, they could not call it due earlier than the five years though, correct?

[Jerry Padilla]

@Joel F.

You can get a 15-30 year with a fixed rate on an investment property and not have to worry about a ballon payment or increased rate.