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Straight Note
A straight note is a promissory note for a loan whereby only interest payment is required for a period of time, and the full principal due for payment in one lump sum on maturity.
It is basically meant for an interest only loan or some type of credit facility structured as balloons.
Technically speaking, this is only applicable for mortgages and does not apply to deeds of trust.
The benefits of interest only mortgages are that an investor would only be required to make repayments towards interest without needing to repay the principle until the full term of the note is reached.
This enables a low repayment amount that can make the investor’s cash flow easier to manage in the short term.
These features make straight notes ideal for property flippers and speculators who are fully intent on selling a property before the note’s maturity.
If for example, a house appreciates in value from $150,000 to $170,000 before the end of the note’s term, then the investor can sell it on the open market, used sales proceeds to fully redeem the loan, and bank in the remaining excess as profits.
However, these types of loan arrangements usually come with higher interest rates that regular home loans.
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