Posted by dewCO on June 21, 2001 at 10:29:49:
There are certain specific loans where you only pay the interest, but usually balloons are set up to repay a portion of the principal too. Make the spread in interest rates is worth it. They always used to be, then there wasn’t much difference, later the spread has gotten larger again.
Will it be difficult to refinance? Don’t know. What will the property be worth then. Will you be able to qualify as easily or easier than you can now? If you improve the property and it cash flows then it should be relatively simple. However, the unknown is always what will interest rates be in that future year?
Probably safer to get an adjustable with a life time cap of 5%, where if you can’t refi, at least you won’t have to, you’ll have the payment maybe go up. The balloon would have to be much lower than the ARM before I’d choose it over the ARM.