What is a straight note?

A straight note, also known as an interest-only loan, is a type of loan where the borrower only pays the interest on the principal balance for a specified period. At the end of this period, the principal amount is due in full. This structure allows for lower monthly payments during the interest-only period, as the borrower is not paying down the principal. This can be advantageous for borrowers who expect their financial situation to improve, allowing them to make the full principal payment later.

In contrast, a fully amortized loan requires borrowers to make regular payments that cover both principal and interest, leading to the entire loan being paid off by the end of the term. A partially amortized loan involves payments that do cover some principal and interest, but do not completely pay off the loan by maturity, thus requiring a larger final payment, often referred to as a balloon payment. A balloon loan is similar but specifically involves a large final payment due at the maturity of the loan after a series of lower monthly payments. Understanding these differences is crucial for identifying the characteristics of a straight note and how it fits into the broader category of loan types.