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Straight Note

DEFINITION

Promissory note where the principal balance is due as a lump sum at the expiration of the loan term and where loan payments are made at specific periods of time.

EXPLANATION

A straight note is a non-amortizing loan which requires a borrower to pay interest on a loan until the principal loan amount is due; on an agreed-upon date, the borrower will pay the full principal loan amount as a lump sum.

Straight notes are often used as secondary financing in conjunction with a primary trust deed or mortgage. They are typically short-term loans (three to five years).

One advantage of this payment option is that it minimizes a borrower’s monthly mortgage. Some borrowers may choose to pay back their loan through interest only payments. This makes their loan a straight note.

Straight notes can also be referred to as an “interest only” note as the individual who took out the loan is only paying interest until the full amount is due.

How A Straight Note Differs From A Fully Amortized Note

A straight note is a promissory note that calls for a final payment covering the entire amount that was loaned on a specific date. While a fully amortized loan interest and payments are made around a schedule that is created in order to fully liquidate the loan. In other words, if all payments are met on time over the allotted scheduling then the loan will be fully paid off at the end of the term.

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