A balloon loan or balloon mortgage is a type of loan commonly used in commercial real estate financing. Unlike conventional mortgage borrowers, the borrowers of balloon mortgages typically make payments for a set period, five to seven years, and then make a large lump-sum payment, or “balloon payment.” This lump sum payment pays off the remaining loan balance and may be ideal for commercial property investors with stable, productive properties.
Exploring Balloon Mortgage Opportunities
Are you considering a balloon mortgage loan? At NNN Deal Finder, our accomplished buyers’ brokers connect commercial investors just like you with all types of brand-name, trustworthy triple-net-lease (NNN) tenants. Due to the predictable cash flow generated by these NNN investments, balloon mortgages may be your best investment option.
If you’re curious about balloon payments, whether it be their down payment requirements, interest rate options, or loan term conditions, consult a leader in commercial investment purchases. Through popular and potentially lucrative NNN properties, investors are discovering the numerous advantages of balloon mortgages.
Let’s cover the critical details of the balloon mortgage, including monthly mortgage payments, interest rates, loan terms, and other key factors.
Why Use a Balloon Mortgage for Commercial Properties?
A type of short-term financing used to purchase highly reputable properties, the balloon mortgage offers lower monthly payments than traditional mortgages.
In today’s economy, access to capital can fluctuate. You may be waiting for economic improvements, hoping to get lower payments before you make the balloon payment. Perhaps, you’re hoping to get a relatively low-interest rate with a manageable principal.
Reduced upfront loan payments can give you time to build investment or home equity, accrue capital, and generate passive and steady income. With historically productive NNN properties, you won’t be stressed when it’s time to pay that final payment or one lump sum.
The Top Reason NNN Properties Are Perfect for a Balloon Mortgage
What is a balloon loan going to do for you?
Simple. Low initial payments allow you to save money when investing in a commercial property. You’ll be better prepared for sunnier financial forecasts and for making that lump sum payment.
But what happens if your payment schedule fluctuates? What if there’s excessive turnover and you struggle with both interest and loan principal? Do you have to pay interest amounts that you didn’t expect? Are closing costs onerous? Would you prefer a larger down payment?
Given current financial uncertainties, having a stable, productive, and trusted investment property is more critical than ever.
Be Ready For When the Balloon Payment is Due With NNN Investments
When you have top-tier NNN tenants on your property, you won’t have to worry about large balloon payment loans, financial deficits, or lack of rental income. After all, NNN lease tenants must adhere to a strict payment schedule. Not only do they make a monthly payment for rent, but they also have to cover operating expenses, including property taxes, insurance, and maintenance.
As an investor, you take less risk for more reward. When the time comes to pay off that lump sum on your mortgage, you won’t have to stress a thing. Under the professional guidance of seasoned buyers’ brokers at NNN Deal Finder, you’ll unlock access to exclusive, lucrative real estate.
Comparing Balloon Mortgages to Traditional Mortgages
Do you need financing for tens or hundreds of thousands of dollars? Balloon loans are uniquely different from more standard loans, including conventional loans, non-conventional USDA loans, and other mortgage products. Moreover, unlike a residential VA loan from the Department of Veterans Affairs, or a residential FHA loan from the Federal Housing Administration, balloon loans can be used across asset classes.
Commercial loans, residential loans, industrial loans, business loans, auto loans – you name it!
Balloon payment mortgages differ from your typical loans in other noteworthy ways, including their loan terms, payment schedules, and interest rates. Here are some comparisons between balloon loans and other loan types:
Balloon Loans vs. Traditional Mortgages
A regular mortgage typically has a term of 15 to 30 years and requires monthly payments that include principal and interest. By comparison, balloon loans have shorter loan terms of 5 to 10 years and require lower monthly payments that only cover the interest.
For example, a 30-year fixed-rate mortgage for $300,000 at 4% interest would require monthly payments of $1,432, while a 10-year balloon mortgage for the same amount and interest rate would require relatively low monthly payments of $1,013. At the end of the mortgage term, the borrower would have to make a large lump sum payment, known as the “balloon payment,” to pay off the remaining loan balance.
Balloon Mortgages vs. Adjustable-Rate Mortgages (ARMs)
Adjustable mortgages typically have fixed interest rates for a certain period, followed by periodic adjustments based on market conditions. Balloon mortgages, in contrast, have fixed interest for the entire term, but require a large balloon payment at the end of the term.
For example, a 5/1 ARM for $300,000 at a starting 3% interest would require monthly payments of $1,265 for the first five years, followed by adjustments to the interest rate every year after. A 10-year balloon product for the same amount and interest equates to per-month payments of $1,013 for the loan term, followed by a large balloon payment at the end.
Balloon Mortgages vs. SBA Loans
SBA loans help small businesses obtain financing for various purposes, including purchasing or renovating commercial real estate. While SBA loans typically have longer loan terms and lower interest rates than most balloon loans, they also require more extensive documentation and often have stricter eligibility requirements.
For example, an SBA 7(a) loan for $300,000 at a fixed 6% interest with a 25-year loan duration would have monthly payouts of $1,959, while a 10-year balloon loan for the same amount and interest level would require monthly payments of $1,013.
As always, specific balloon mortgage rates may vary depending on the lender and the borrower’s creditworthiness. Before applying for a loan, research your options and speak with a lender to determine any reward and risk involved.
Lenders Who Provide Balloon Mortgages
At NNN Deal Finder, we not only connect savvy investors with premier NNN properties. We also draw upon a deep reservoir of industry connections across brokers, contractors, property managers, lenders, and beyond. Are you tired of conventional mortgages and loans and considering a balloon mortgage term?
Do you lack or prefer not to use personal finance? When you need help finding that perfect monthly payment outside the standard or conventional mortgage, you have options.
What Is a Balloon Loan Servicer?
Several lenders offer balloon loans, including banks, credit unions, and non-bank lenders. The particular loan terms, interest rates, and payment schedules may vary depending on the lender and the borrower’s creditworthiness.
Here are two examples of commercial balloon loans from the largest banks.
Balloon Mortgages From Wells Fargo
Wells Fargo offers commercial balloon mortgages with loan terms of up to 10 years and balloon payments due at the term’s end. Interest rates on commercial balloon mortgages from Wells Fargo typically range from 3.75% to 7.5%, with amounts up to $2 million. Monthly payments are interest-only and calculated based on the remaining loan amount.
For example, a commercial balloon mortgage from Wells Fargo for $1 million with a 5-year loan duration and 5% interest would require monthly payouts of $4,167. When the term ends, the borrower would have to make a significant balloon payment to pay off the balance.
Balloon Mortgages From Bank of America
Bank of America offers commercial balloon loans with loan terms of up to 10 years and balloon payments due at the end of the term. Interest rates on commercial balloon loans from Bank of America typically range from 4.25% to 6.5%, with amounts up to $5 million. Monthly interest-only payments are calculated based on the remaining balloon payment balance.
Balloon financing from Bank of America for $3 million with a 7-year term and 4.5% interest would cost $11,250 monthly. At the end of the term, the borrower would have to pay $3 million to cover the balance.
Balloon Mortgage Terms for Borrowers
How does a balloon mortgage work?
Balloon loans have unique loan terms, so before you make the balloon payment, ensure you understand the entire mortgage structure.
Balloon mortgages typically have higher loan amounts, ranging from $100,000 to tens of millions of dollars.
The duration for a balloon mortgage typically ranges from 3 to 10 years. The term includes an initial period of fixed interest rates followed by a final balloon period.
Balloon loans may have lower interest rates than traditional mortgage loans, but the rates are typically higher compared to those of adjustable-rate loans. The interest rates are usually fixed for the initial monthly payments and then adjusted for the remaining term.
Balloon loans generally have lower monthly payments than most mortgage loans because the balloon payment is due at the end of the loan’s term. However, it is important to note that the final balloon payment can be substantial, sometimes requiring tens of thousands or even millions of dollars to be paid in a balloon payment lump sum.
Many balloon loans require interest-only payments for the initial period, which means that the borrower only pays the interest on the loan, not the principal. This can result in lower monthly payments during the initial period, but the remaining principal must be paid in full at the end of the loan’s term.
Some balloon mortgages may have a prepayment penalty, a fee charged to the borrower for paying off the loan early. The balloon payment penalty can be a percentage of the remaining balance or a set fee.
Borrowers should ensure they have a steady income and a plan to make the balloon payment when it becomes due. Investing in predictable, productive NNN commercial properties is a great way to cover balloon payments!
Calculate Your Balloon Mortgage
Use this calculator to help you determine the balloon payment. You can calculate your balloon payment amount, initial payments, interest-only payments, and other small and large payment amounts.
Requirements for Balloon Mortgage Borrowers
From building home equity to acquiring commercial properties, streamlining business loans, and taking out auto loans, any new loan comes with various borrower requirements. The specific requirements for borrowing commercial balloon financing can vary depending on the lender and the type of property financed.
However, here are some general requirements that borrowers may need to meet to qualify for a balloon mortgage:
Balloon mortgage borrowers should have a steady and current income from their business or employment to demonstrate their ability to make a large payment.
Balloon mortgage lenders generally look for a credit score of 650 or higher, but this may vary depending on the lender and the financing amount.
Balloon mortgage borrowers must typically make a bigger down payment of 20-30% of the property value, depending on the lender.
Balloon mortgages are typically for large balloon payment amounts, with loan balances ranging from tens of thousands to millions of dollars.
The property purchased or refinanced will usually serve as collateral for the balloon mortgage loan and all risks involved.
Whether home loans to buy a home sooner, short-term loans, or NNN commercial financing, balloon financing requirements vary depending on the lender and investment property type.
Need help obtaining a balloon mortgage or finding a balloon payment schedule that makes sense? Are you considering a significant down payment on a lucrative property for reduced monthly payouts until the final payment is due?
Explore Balloon Financing for NNN Investing Today
What is a balloon loan worth to you?
At NNN Deal Finder, we’ll connect you to the experienced, reputable professionals you need to obtain lending, whether conventional mortgages, balloon mortgages, or some hybrid thereof.
Still uncertain about balloon mortgage pros and cons?
Contact our investment specialists, and we’ll walk you through the best financing options for acquiring the property suited to your goals.
Our team analyzes hundreds of the best NNN properties each day for low-risk, high-reward, e-commerce-resistant commercial tenants. With the right loan, you can start producing predictable cash flow quickly.