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Reviewed by Casa Academy and updated July 29, 2026 using the current DBPR checklist and Pearson VUE scheduling guidance.

Straight Note

A straight note is a promissory note calling for periodic interest-only payments with the entire principal balance due in a lump sum at maturity, common in short-term bridge and construction financing rather than long-term residential amortization.

Exam context

Straight note pays interest only until maturity balloon pays full principal. Amortizing loan includes principal in each payment. Common in bridge and construction loans.

Payment structure

Borrowers pay interest each period but no scheduled principal reduction until the maturity date. At maturity the full principal is due unless refinanced. Lenders price straight notes for higher risk because principal exposure remains until payoff. Combined with a mortgage or deed of trust, the note secures the property.

Uses and risks

Developers use straight notes during construction until permanent takeout financing replaces them. Investors relying on sale proceeds must plan the balloon payoff. Default at maturity triggers foreclosure if not refinanced. License exams contrast straight notes with amortizing loans where each payment includes principal and interest.

Examples

  • Bridge financing

    A borrower holds a $500,000 straight note at 9% interest-only for 18 months, then pays the full principal from sale of the renovated property.

  • Maturity default risk

    A straight note matures with $280,000 principal due; the owner must refinance or sell because no principal was amortized during the term.

Keep studying

Practice straight note questionsEnroll in pre-licensing

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