Hello, please excuse my ignorance, but I did search the forums and could not find the answer to this (probably simple) question.
A bank is offering commercial loans at 6.83% up to $1.5 million, with a 10 year term, and 20 year amortization. What does this mean?
Thanks for any help.
The loan payment is calculated such that after 20 years of payments the loan will be paid in full hence the loan is fully amortized in 20 years. However, the bank doesn’t want to wait 20 years so they require a balloon payment in 10 years. You as the borrower get a lower monthly payment based upon the 20yr amortization but have to payoff the loan balance at year 10. This is very basic stuff so find a good finance book or online resource to learn and understand the terms.
To simplify the answer more… you have a 20 year loan that requires you to refinance in 10 years to pay the lender the remaining balance.
The interest rate will be fixed for 10 years at which time it will balloon (balance of mortgage must be paid by either sale or refinance)—payments will be based upon a 20 year repayment schedule (also known as amortization schedule)…
Are you going FULL DOC—what is the final LTV (loan to value) you are requesting?
Rate seems on the high side if you are going FD with an 80 LTV…
Regards,
Scott Miller