The first couple of houses I bought were on balloon notes. The 6 month kind. I found that I didn’t like worrying about how I was going to deal with the upcoming due dates on them. Didn’t need the headache. Didn’t like being at the mercy of a banker who could just say, “Nah, I ain’t gonna roll them. Get a new loan.”
I heard someone, maybe it was here, call a balloon note a “foreclosure in embryo”. After seeing what happens to some investors who use them, I am beginning to agree.
These days I like to find sellers who will just “give” me the property. Its so much easier that way.
I’ve been buying a lot of properties from local banks. All banks have their 3 or 5 year balloons attatched. I know they put these in there so that when interest rates rise, they are not loosing a profit. My credit is good, but should I have concerns about them saying “move it”? I’d hate to know that I had 20 loans all “ticking away”. I need a seasoned investor to comment on this one, maybe someone who has lived through a couple decades of roller coaster interest rates.
Re: Afraid of the big bad ball00ns? Not in Canada… - Posted by The Donald
Posted by The Donald on June 20, 2000 at 22:05:03:
Geez, you guys in the States are quite a bunch, aren’t you? Getting your knickers in a knot because of a balloon mortgage?
Turns out that just to the north of you, folks in Canada have been living with these type loans for many a generation - and we’re not stir crazy as a result.
Seems the banks here don’t like locking in for 15 or 30 year term as they claim not to have a secondary market for such mortgages - or some such drivel is what you’ll hear in these part.
So virtually every residential mortgage in Canada is a balloon - from 6 months to 10 years - with 3 or 5 years being the institution norm.
Get a grip, relax and don’t worry about - when the time comes, I’m certain you’ll be able to swing a deal with your bankers as they’re not in the property management business - they’re in the money business, and hate to own RE.
Ed Beckley (remember him) calls mortgages with balloons due in less than five years, neutron balloons, because they destroy all the people and leave the real estate in tact. lol.
He says to begin dealing with balloons 18 months before they come due. AND never take a balloon with less than a 7 years due date.
I’ve bought plenty of property through the years with balloon payments, usually five year balloons. With balloons you better have a plan to deal with them. There are usually two scenarios with balloons when they become due. One you refinance, assuming there is enough equity in the property to do so, or two, extend the note further out from when the balloon is due. Either way you are pretty much at the mercy of someone else. Not always a comfortable position.
Just plan ahead and don’t wait until the balloon is due in sixty days to deal with the situation.
Also do not enter into deals where the balloon payment is less than five years. Balloons in the seven to ten year range allow you to sleep better at night and also give the property time to appreciate so you can refinancethe balloon.
