Your thoughts on Re-financing Multi-family from 15 year fixed to 5 year Balloon

[Azeez K.]

Greetings BP Friends!

Hope you all enjoyed the long weekend.

Here is the situation:

1. I currently have a 15 year fixed mortgage on a MF @ 6.75% (Long-term hold)
2. Was considering re-financing and found a bank giving me a rate of 4.5% with a 5 year Balloon

I have always used traditional fixed 15-30 year financing in the past. This is the first time I was evaluating a balloon mortgage scenario.

However, since my rate was high I thought refinancing at a lower rate as it would increase my cash flow in the short term that would allow me to invest some of the proceeds to fund future deals.

Concern:

Having never been through the balloon mortgage scenario:

• Concerns with making the final balloon payment
• Failure to refinance the property at the end of the term. I don't want to sell the property at the end of the term as its part of my long term strategy.

The mortgage rep was positive that if all things equal I should have no issues re-financing at the market rates and still keep the property.

I want to get guidance from fellow seasoned investors if I should stick with what I have now or go for the balloon mortgage scenario?

Thanks in advance for reading the post and your continued guidance and support.

[David Krulac]

@Azeez K.

I'm pretty much against all "Balloons".

Nobody knows what interest rates will be in 5 years, but there is an indication with the Q E of $85 billion a month that the interest rates will be higher at some time in the future. It is possible that the interest rate in 5 years could be higher than your current 6.75%

Most people don't remember but in 1981 and 1982 mortgage interest rates were 15% to 18% or so fixed for 30 years. Figure out what that did to mortgage payments, and new mortgage lent.