Updated about 8 years ago on .
Conflicted with a 10 year balloon vs 30 year fixed options
I have an option to do a cash-out refi for a penfed 10 year balloon (3.875% interest, 30 year amortization) or a 30 yr fixed with a mortgage broker(4.75% interest) for my BRRR method strategy for a SFR rental. Payment is $470 v $522. The 10 year balloon nets $6240 less interest over the 10 year period. I plan on long-term buy and hold, but not sure if I would be selling close to year 10 and re-positioning. This property would net me $500/mo cashflow after debt service with the 4.75% 30 year rate ($558/mo cashflow with balloon). Cashflow is more than adequate for both loans so I wouldn't be in a bad position with either. I know I could refinance the loan at year 10, but the risk is higher interest rates at the time. the refi costs would still be less than the $6240 saved over the life of the balloon loan. I'm thinking that rates will be higher in 10 years, so I'll just end up paying more in interest over the next loan term if/when I refinance vs sell. small likelihood I might sell and reposition in 10 years (1977 property).
Any thoughts for or against each option? Thanks in advance.