Predictions on Prime Rate going up? Loan question

[Kacey W]

I have two options with a bank on loan terms that I am deciding on.

1) 15 year AM, 3 year balloon at 6% interest.

2) 15 Year AM, complete 15 year term with resets every 3 year at prime rate + 2.75%.

I am fine with the 15 year Am and 6% to start, but I am not sure what prime will be in 3, 6, 9 years, etc. I don't see why I wouldn't go with the 15 year term and reset and not have to worry about a balloon??

Any thoughts?

This is for a larger commercial property.

Thanks

[Roy S.]

The prime rate is currently 3.25%. Add +2.75% and you get 6%. So both loans start at the same rate.

The first loan has a 3 year BALLOON. That means it is due in 3 years, whereas the second loan gets reset, probably to a higher interest rate. The first loan you HAVE to refinance, the second loan, you MAY refinance.

Without the balloon, I'd go with loan#1. But because of the balloon, loan#2 is the clear winner.

Note: the 3.25% is the wall street journal prime rate. This seems to be the most commonly used prime rate, but there are various ones to choose from. You may want to check your documents and see which prime rate it refers to.

Though Kevin makes it clear you may be able to do even better :)

Good luck!