What is a Straight Note in Real Estate

Although it might seem like a part of a music song, a straight note is a form of a promissory note. But exactly what type of loan is it?

Straight notes are a type of mortgage note where you make interest-only payments for a short time, and then the entire principle is due. There are no periodic payments of principal, like an installment note.

When you are buying a house, unless you pay cash, you will need to get a mortgage. If you need a good mortgage lender I recommend talking to real estate agents who should be able to recommend several great ones. There are lots of different categories of mortgage loans. The most common is a 30-year fixed, and a Straight note is perhaps the least common.

What are straight notes?

Straight notes are pretty straightforward – hence the name.

The term of a straight note is much shorter – about 6 months. The interest and principal balance are both due at the end of the term. Monthly payments can be interest only, no principal, or it could be that it is all due at the end of the term of the note.

Also, they have a higher interest rates.

As you probably know a mortgage is a promissory note where you make monthly payments of both principal and interest using real property as collateral. Upon completion of the note, and the final payment is made, the lien is removed from the deed of trust and you own the house free and clear.

This written agreement defines the terms of the mortgage. Thinks like the rate of interest, the repayment method, and all the details of loan repayments are spelled out in detail on paper for everyone to agree to.

Defaulting on a Loan

Another question I often get is what happens if a property owner defaults on a mortgage.

If the borrower defaults on a loan or doesn’t follow the loan agreement, or breaks the term of the mortgage, the bank can enforce an acceleration clause on the note and make the entire loan balance due.

Is a Straight Note right for you?

The best way to tell if a straight note is right for your situation is to talk with a mortgage lender and talk about the term of the loan.

Straight notes are not very common in real estate transactions. Even Real Estate Investors don’t usually get them. Sometimes they are used in commercial real estate, but that is also pretty rare.

As a home seller, you don’t really need to worry about what kind of loan your buyer is getting. Either they will be approved, or they won’t. If they do, then great! You are selling your house, and everything is great! If they aren’t approved, then the deal will fall out, and you will have to find another buyer.

I hope this article has been helpful in explaining Straight Notes.

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