Balloon Loan versus Convention in Todays Rate Environment

[Dylan Favazza]

I just recently used my 10th Fannie/Freddie mortgage so I’ve been diving in to learn about my lending options moving forward. I spent the day yesterday calling local banks and here’s the decision I’m trying to make:

I have 4 properties I want to cash out refinance for total appraised value of $426k (I’m in saint louis). One property is $75k, two around $100k and the last at $150k, all single family.

I’m 95% of the way through the refinance process with a company called LendSimpli that can offer me a 30 year fixed rate, 3 points at a 7.25% interest rate as a portfolio packing all 4 together. A crazy high interest rate but in todays world I feel like a 30 year fixed debt is a much safer move than a commercial loan with a 3-5 year balloon. My local CU can offer commercial terms at 4.25% interest, 20 year term with no points but a 3 year balloon.

So when I pencil it out my total return is better with the CU

-a lot more debt pay down overtime

-monthly payments a little less, so more cashflow

BUT I’d have to start the process over again AND in 3 years rates are certainly going to be higher and who knows where the market will be. I am thinking that it’d take the Fed raising interest rates A LOT more times for my rate in 3 years to go from 4.25% to 7.25%, but what if the value decreases?

Need some help or advice on this and maybe someone to talk me off the ledge on a balloon note. I’m not opposed to it and actually have a couple commercial loans now, but I’m concerned with putting more of my portfolio into loans that will balloon with how unpredictable things are right now.

On another similar note, I’m in final stages of negotiations on another 5 property rental portfolio that’ll put me back in the same situation except at the time of sale. Maybe I just do this refinance with LendSimpli and the new purchase with a commercial loan?

Anyone have advice, or maybe even a better alternative? Thanks!!

[Ned Carey]

@Dylan Favazza  first of all 7.25 is historically low for investor rates.  Second you can do 1-1.5% better in todays market. 

Right now we have a opportunity for wealth building that we have not seen in a generation or two. The ability to buy or refinance at very low interest rates with long term fixed financing in a increasing inflationary environment.  Rents and prices are likely to go up without your mortgage payment going up. 

Companies like Dominion financial, lima on lending one are offering 5.% 30 year rates last I heard,  Most DCSR loans like these companies should be cheaper than you have been offered for 30 years. 

Now part of your high rate may be your credit score or the loan to value ratio. You might get a better rate with a lower LTV. Or you may be able to "Buy Down" the rate.