How Do Commercial Loans Work?

[Nancy Tran]

Hi,

I am attempting to secure financing for a five-plex via a commercial loan. This is my first real estate property, but it's older and the loan amount is small (less than $200k), so the banks and credit unions I shopped around at are asking for higher interest rates. Here are the best options I've been given:

25% down:

5/30 - 6.63%

7/25 - 6.97%

10/10 - 6.92%

15/15 - 7.05%

10/30 – 7.11%

35% down:

5/25 - 5.5%

Am I understanding correctly that at the end of the first number, a balloon payment is potentially due? How do people navigate this? Is it very likely I'll just be able to refinance at the end of this period? From a leverage standpoint, it would appear the best thing to do is the 25% down, 10/30, but I just worry about the potential balloon payment after 10 years if I am unable to refinance.

I can afford the 45% down, but would love to be able to use that capital toward another purchase.

Thank you for all responses in advance,

Bruce

[Steve Vaughan]

My first commercial loan in 2003 was 20% down 5/20 at 7%.  The 5 was a rate adjust and call, but they never did.  I paid it off last year.

I've had 2 others with same terms, but lower rates.  My last one prior to payoff last spring was a 5/15 at 5.75% and was about to go down to about 5.25%.  When they asked for my taxes and PFS again, like they did every year, I said nah- give me a payoff quote.  If I wanted to be babysat, I'd go back to a cubicle.

Point is, the loan is callable at the 5,7 or 10 yr mark usually, not a balloon.  They have the right to make it one and will, depending on how your financials look as you report to them every year.